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Chapter 7 Chapter 7 Differentiation Differentiation Objective Objective : determining the : determining the company’s sustainable company’s sustainable competitive advantage competitive advantage

Chapter 7 Differentiation Objective: determining the company’s sustainable competitive advantage

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Page 1: Chapter 7 Differentiation Objective: determining the company’s sustainable competitive advantage

Chapter 7Chapter 7

DifferentiationDifferentiationObjectiveObjective: determining the : determining the

company’s sustainable company’s sustainable competitive advantagecompetitive advantage

Page 2: Chapter 7 Differentiation Objective: determining the company’s sustainable competitive advantage

Differentiation Differentiation in the Customer’s Mindin the Customer’s Mind

Differentiation is some aspect of the Differentiation is some aspect of the product, service or company that is product, service or company that is unique in the customer’s mind and unique in the customer’s mind and holds value for the customer. holds value for the customer.

Basically, this is any unique selling Basically, this is any unique selling propositions (USP) that customers propositions (USP) that customers view as different from competitors view as different from competitors and desirable, and that offers an and desirable, and that offers an advantage over competitors.advantage over competitors.

Page 3: Chapter 7 Differentiation Objective: determining the company’s sustainable competitive advantage

Unique Selling Unique Selling Proposition (USP)Proposition (USP)

Many marketers think that companies Many marketers think that companies should promote only one benefit to the should promote only one benefit to the target market. Rosser Reeves call this is as target market. Rosser Reeves call this is as unique selling proposition (USP). According unique selling proposition (USP). According to him, each brand (SBU) should determine to him, each brand (SBU) should determine an attribute and dedicate itself to become an attribute and dedicate itself to become “number one” on that attribute. The “number one” on that attribute. The underlying idea there is that buyers tend to underlying idea there is that buyers tend to remember number one better, especially in remember number one better, especially in an overcommunicated society. Thus an overcommunicated society. Thus

Page 4: Chapter 7 Differentiation Objective: determining the company’s sustainable competitive advantage

Toyota differentiate itself on economy, Toyota differentiate itself on economy, Mercedes and Cadillac on luxury and Mercedes and Cadillac on luxury and Porsche and BMW on performance, Porsche and BMW on performance, Volvo on safety, Domino’s Pizza on Volvo on safety, Domino’s Pizza on home deliver in 30 min. USP presents a home deliver in 30 min. USP presents a plain, straightforward message to the plain, straightforward message to the customer easier to perceive and customer easier to perceive and understand.understand.

Consumers simplify the buying process Consumers simplify the buying process by categorizing products in their minds. by categorizing products in their minds. Marketers do not leave their products’ Marketers do not leave their products’ positions to chance. They must plan positions to chance. They must plan differentiation strategies that will yield differentiation strategies that will yield sustainable competitive advantage sustainable competitive advantage (SCA) or at least a competitive(SCA) or at least a competitive

Page 5: Chapter 7 Differentiation Objective: determining the company’s sustainable competitive advantage

advantage. The more difficult the advantage. The more difficult the advantage is to replicate, the greater its advantage is to replicate, the greater its benefit and the longer it can be used as a benefit and the longer it can be used as a competitive weapon. As did Burger King competitive weapon. As did Burger King who promoted “broiling, not frying”. who promoted “broiling, not frying”. Since it was difficult and very expensive Since it was difficult and very expensive for McDonalds to change all its fryers for McDonalds to change all its fryers with broilers Burger King’s tactic was an with broilers Burger King’s tactic was an effective differentiating factor.effective differentiating factor.

Areas where one company can Areas where one company can differentiate itself would include product differentiate itself would include product or service quality, fast service, good or service quality, fast service, good location, recognizable name and location, recognizable name and associated image factors, etc.associated image factors, etc.

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Differentiation Differentiation StrategiesStrategies

Marketers can differentiate Marketers can differentiate (differentiate) their products on;(differentiate) their products on; productproduct: a company can differentiate its : a company can differentiate its

physical product from the competitors e.g. physical product from the competitors e.g. product featureproduct feature - Volvo provides safety, - Volvo provides safety, Delta Airlines offers wider seating and free Delta Airlines offers wider seating and free in-flight telephone use, British Airways in-flight telephone use, British Airways offers showers; offers showers; product performanceproduct performance - - Vestel Washing Machine offers express Vestel Washing Machine offers express washing, Rinso offers better whiteness; washing, Rinso offers better whiteness; style and designstyle and design - Porsche - Porsche

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offers unique look; offers unique look; atmosphereatmosphere - Hard - Hard Rock Café is special with its interior Rock Café is special with its interior design, Ciragan Palace with its building; design, Ciragan Palace with its building; placeplace - Swiss Hotel offers the best - Swiss Hotel offers the best Bosphorus view...Bosphorus view...

serviceservice: a product can be differentiated : a product can be differentiated by its speedy, convenient or careful by its speedy, convenient or careful service delivery e.g. Akbank offers full service delivery e.g. Akbank offers full banking services at home, Garanti offers banking services at home, Garanti offers service during the lunch time, Osmanli service during the lunch time, Osmanli Bank offers branches in supermarkets, Bank offers branches in supermarkets, Migros offers home delivery, McDonald’s Migros offers home delivery, McDonald’s offer trainingoffer training for its franchisees… for its franchisees…

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personnelpersonnel: a company can hire better : a company can hire better people than competitors do e.g. Singapore people than competitors do e.g. Singapore Airlines is well known with its beautiful Airlines is well known with its beautiful flight attendants, IBM’s people are flight attendants, IBM’s people are professional, McDonald’s people are polite. professional, McDonald’s people are polite. Disney trains theme park people thoroughly Disney trains theme park people thoroughly to ensure that they are competent, to ensure that they are competent, courteous and friendly. Ritz-Carlton starts courteous and friendly. Ritz-Carlton starts to train its service staff from the very first to train its service staff from the very first day.day.

imageimage: a company may establish an image : a company may establish an image different from the competitors e.g. different from the competitors e.g. Motorola “quality”. The company can not Motorola “quality”. The company can not create an image in people’s mind overnight, create an image in people’s mind overnight, it requires hard and consistent work. it requires hard and consistent work. Symbols, famous people, color and Symbols, famous people, color and sponsorship can be used to create image.sponsorship can be used to create image.

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benefitsbenefits: a product’s benefit can be : a product’s benefit can be differentiated e.g. Nazar chewing gum differentiated e.g. Nazar chewing gum protects from the devil eyes, Orbit offers protects from the devil eyes, Orbit offers teeth protection, Colgate offers better teeth protection, Colgate offers better taste... Actually, this is the most frequently taste... Actually, this is the most frequently preferred method to differentiate. preferred method to differentiate.

usage occasionsusage occasions: a product’s position can : a product’s position can be positioned according to the time of using be positioned according to the time of using the product e.g. Hilton “when American the product e.g. Hilton “when American business take the family along, American business take the family along, American business stays at Hilton”...business stays at Hilton”...

user categoryuser category: a product can be positioned : a product can be positioned for some people e.g. Johnson&Johnson’s for some people e.g. Johnson&Johnson’s baby shampoo, Pepsi Max for adventurous baby shampoo, Pepsi Max for adventurous men…men…

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against another productagainst another product: this : this approach can be named as competitive approach can be named as competitive advertising where the company advertising where the company positions itself directly against one positions itself directly against one competitor e.g. Avis “we try harder” competitor e.g. Avis “we try harder” against Hertz, Wendy’s “where is the against Hertz, Wendy’s “where is the beef?” against McDonald, Sabah against beef?” against McDonald, Sabah against Milliyet; Burger King against McDonald; Milliyet; Burger King against McDonald; Sheraton against Hilton…Sheraton against Hilton…

product class dissociationproduct class dissociation: a product : a product may also be positioned away from all may also be positioned away from all competitors e.g. Sprite has positioned competitors e.g. Sprite has positioned itself against the “cola” products, Yapi itself against the “cola” products, Yapi Kredi claims to be giving the best Kredi claims to be giving the best services…services…

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pprrice:ice: a product can be differentiated by a product can be differentiated by using its price. The product would be using its price. The product would be having the lowest price in the market e.g. having the lowest price in the market e.g. Alo. In this case, the company offers Alo. In this case, the company offers equivalent benefits at a lower price. The equivalent benefits at a lower price. The alternative is having high price in which alternative is having high price in which unique benefits offset the higher price.unique benefits offset the higher price.

turbo marketingturbo marketing: Kotler and Stonich : Kotler and Stonich propose that there are four stages of propose that there are four stages of competitive marketing: making goods less competitive marketing: making goods less costly; designing products to be different; costly; designing products to be different; making better products; (all focus on making better products; (all focus on product differentiation) and making (before product differentiation) and making (before competitors) and delivering goods and competitors) and delivering goods and services faster than competitors (called services faster than competitors (called turbo marketing). turbo marketing).

Page 12: Chapter 7 Differentiation Objective: determining the company’s sustainable competitive advantage

Steps to FollowSteps to Follow

The differentiation task involves the The differentiation task involves the following steps;following steps;

1.1. Identifying a set of possible competitive Identifying a set of possible competitive advantages upon which to build a positionadvantages upon which to build a position

2.2. Choosing the right competitive advantagesChoosing the right competitive advantages

3.3. Selecting an overall differentiation Selecting an overall differentiation strategystrategy

4.4. Effectively communicating and delivering Effectively communicating and delivering the chosen position to the market.the chosen position to the market.

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Differentiation MapDifferentiation Map

When considering the significance of the When considering the significance of the company’s differentiation strategy, it is company’s differentiation strategy, it is important to make sure that the selection is important to make sure that the selection is one that is valid and is perceived by the one that is valid and is perceived by the customer as unique. If the selection is customer as unique. If the selection is debated, customer profiles, debated, customer profiles, product/company capabilities, and product/company capabilities, and competitors must be reexamined.competitors must be reexamined.

The differentiation map is a useful method The differentiation map is a useful method to determine the right position for the to determine the right position for the company.company.

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The differentiation map is a graphic The differentiation map is a graphic representation of the company’s representation of the company’s capabilities + the relative reflection of capabilities + the relative reflection of those capabilities on customer needs.those capabilities on customer needs.

Down the left hand side of the map, Down the left hand side of the map, customer’s needs would be listed in customer’s needs would be listed in priority order. Across the top, there priority order. Across the top, there would be a rating scale. The scale would be a rating scale. The scale depicts the company’s capabilities as depicts the company’s capabilities as they relate to satisfying each of the they relate to satisfying each of the needs. On the basis of the customer’s needs. On the basis of the customer’s perception of capabilities, the company perception of capabilities, the company rates itself and its competitors in rates itself and its competitors in relation to each need. relation to each need.

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On the map, all companies receive a On the map, all companies receive a rating for each need as perceived by rating for each need as perceived by the customer. Then, the ratings are the customer. Then, the ratings are connected to garner a picture of the connected to garner a picture of the strength of each company with strength of each company with regard to satisfying the needs of the regard to satisfying the needs of the customer.customer.

For each SBU, a separate For each SBU, a separate differentiation map should be differentiation map should be completed.completed.

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What the Map Tells YouWhat the Map Tells You The first and most important feature of the The first and most important feature of the

map is that, the gaps between the company map is that, the gaps between the company and its competitors can easily be seen. and its competitors can easily be seen.

A second feature of the map is its ability to A second feature of the map is its ability to highlight areas where improvement is highlight areas where improvement is necessary. necessary.

A third feature is that the map can quickly A third feature is that the map can quickly show, if the company should even compete show, if the company should even compete in a market. If the company is ranked low in a market. If the company is ranked low on the top needs of the customers, the firm on the top needs of the customers, the firm should consider drastic changes of even should consider drastic changes of even leaving that market.leaving that market.

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If the company cannot competitively If the company cannot competitively satisfy the customer’s top needs (the satisfy the customer’s top needs (the minimum requirements, it cannot minimum requirements, it cannot compete; it is better to consider not compete; it is better to consider not playing.playing.

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Additional PointsAdditional Points about Differentiation about Differentiation

The differentiation factor should not focus on The differentiation factor should not focus on the companythe company

The differentiating factor should not be solely The differentiating factor should not be solely customer focused (but also competitor focused)customer focused (but also competitor focused)

The differentiating factor’s focus should be The differentiating factor’s focus should be dominated by the company versus the dominated by the company versus the competitioncompetition

An easily copied differentiating factor should be An easily copied differentiating factor should be avoidedavoided

The differentiating tactic should be kept simple The differentiating tactic should be kept simple (USP)(USP)

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Possible ErrorsPossible Errors UnderpositioningUnderpositioning;; failing to really position failing to really position

the company at all. Customers may only the company at all. Customers may only have a vague idea about the company or have a vague idea about the company or they may not really know anything special they may not really know anything special about it. about it.

OverpositioningOverpositioning;; giving buyers too narrow giving buyers too narrow a picture of the company. Customers may a picture of the company. Customers may have misconceptions about the offers of the have misconceptions about the offers of the company such as offering only very company such as offering only very expensive products.expensive products.

Confused positioningConfused positioning;; leaving buyers with a leaving buyers with a confused image of a company.confused image of a company.