Differentiation Strategies & value chain

Group 2Saurabh Gupta, 08Bhabanishankar Maiti, 19Mangesh Narkar, 29Pulkit singhi, 50

• Generic competitive strategies– Management game plan to competing

successfully and securing competitive advantage over rivals

• Objective– Defeat the rival companies in doing job of

satisfying needs and preferences of customers better than rivals

5 Generic Strategies

• Broad Differentiation – Differentiate companies product offering from rivals that will appeal

broad spectrum of buyer

• Focused Differentiation – Narrow buyer segment – Offering niche members customized attributes that meets buyers

test and requirements better than rival product

• Integrated cost leadership and Differentiation (Best cost)– Giving customer more value for their money– Good to excellent products attributes at lower cost than rivals

(broad) Differentiation • Unique in ways that are valuable for wide range of

customer

• Almost anything can be base of differentiation

– Tangible factors (product , location etc)– Intangible factors (Reputation, cause, an ideal)

• Three basis of differentiation – Product attributes– Firm customer relationship– Firm linkage

• Differentiation through Product attributes – Unique test – Multiple features – Wide selection– Superior service – Engineering design and performance

• Differentiation through Firm-customer relationship– Customization– Image reputation – Consumer marketing

• Differentiation through Firm linkage – Distribution channel – Service and support

Ways to implement differentiation strategy

• Incorporate product attributes and user features that lower buyer overall cost.– Providing just in time deliveries– Cell phone for rural economic market with longer

battery period, solar battery, inbuilt flash light, mosquito repellant

– Chevrolet promise

• Incorporate features that raise product performance – Provide buyer greater reliability, ease of use,

convenience, durability – Johnson & Johnson baby product

– Product or service safer, cleaner - Singapore airlines

Ways to implement differentiation strategy

• Incorporate features that enhance buyer satisfaction in non economic or intangible ways – Image, prestige, status superior craftsmanship,– Rolls Royce, Gucci, Harley Davidson

• Deliver value by means of Differentiating on the basis of competencies and competitive capabilities that rivals don’t have or can’t match – fox news, cnn– Japanese auto makers – Microsoft having better capability than Avon

When differentiation strategy works best

• Buyer needs and uses of products are diverse– Bigger window of opportunity to do things

differently

Few rivals following similar differentiation approach

– Differentiator encounter less head to head rivalry

– Many rivals – strategy overcrowding – weak brand differentiation

When differentiation strategy works best

• Technological change is fast paced – Cell phone– Mp3 players – apple

• Availability of many ways to differentiate product and service and availability of many buyers to perceived these differences as having value – Unless different buyer have distinguishingly different

preferences for certain features and product attribute profitable differentiation opportunities are restricted .

Pitfalls of differentiating Strategies

Differentiations strategies can fail for any of several reasons

• Competitors are able to quickly copy most of appealing product attributes

• Buyers may not see sufficient value in appealing attributes of companies product

• Overspending on efforts to differentiate affects company profit

• Over differentiating – product quality or service level exceeds buyers’ need

• Charge to high price premium

Best Cost strategy

• Concept – competitive advantage through…. – Lower cost than rivals for similar product – Incorporation of upscale product attributes– putting company in position to under price rivals

whose products have similar upscale attributes

• Blend of low cost advantage and differentiation advantage

• Appeals broad market as a whole and narrow niche market .

Best cost strategy

• For successful implementation firm must be able to ..1. Incorporate attractive features at lower cost than

rivals whose product have similar features

2. Manufacture good to excellent quality product at lower cost than rivals similar quality product

3. Develop the product that delivers good to excellent performance at lower cost than rivals whose products also known for good to excellent performance

4. Provide attractive customer service at lower cost than rival who provide similar services

When Best cost strategy works best

• Market where buyer diversity makes the product differentiation the norm and there many buyers are also sensitive to price and value

Toyota Best Cost strategy for Lexus Line

Introduction • Toyota Widely regarded as low cost producer • Despite its emphasis on product quality Toyota achieved

low cost leadership through efficient supply chain management and low cost assembly capabilities

• Models are positioned in low to medium end price spectrum

• High production volume are conduce to low unit cost.• Toyota decided to introduced new Lexus model to

compete in luxury car segment it employed integrated strategy .

Toyota took following steps in crafting and implementing its Best cost strategy.

1. Design an array of high performance characteristics and upscale features in to Lexus model so as to make comparable in performance and luxury to other high end models such as Mercedes, Audi, Jaguar, Cadillac.

2. Transferring it’s capability in making high quality Toyota models in low cost to making premium quality Lexus model at cost below other luxury car market

3. Toyota supply chain capabilities and low cost assembly know how allowed it to incorporate high tech performance features and upscale quality at substantially less cost compare to Mercedes and BMW models

4. Toyota manage to keep the price of attractively equipped Lexus car low enough to draw price conscious buyers away from Mercedes and BMW.

5. Establishing a new network of Lexus dealers, separate from Toyota dealers, dedicated to providing a level of personalized, attentive customer service unmatched in the industry.

Case study conclusion

• Lexus models consistently ranked first in widely watch J D Power & associate quality survey.

• Lexus models are typically several thousand below Mercedes and BMW models clear signal that Toyota succeeded in implementing integrated strategy.

Price

Lexus RX 330, midsize SUV

Mercedes M-class SUV

BMW X5 SUV

$ 36000 - $ 45000 $ 50000 - $ 65000 $ 42000 - $ 70000

Big risk of best cost provider strategy

• Possibility of getting squeezed between low cost provider and high end differentiation strategy.– Low cost providers may siphoned away with

the appeal of low cost despite their less appealing product attributes

– High end providers may be able to steal customer away with appeal of better product attribute even though their product carry high price tag

Focus Differentiation

• Concentrated attention on narrow piece of total market – Target segment or niche can be Geographical

uniqueness – community coffee – Specialized requirement in using the product– Special product attribute the appeal niche members

• To implement a focus strategy, firms must be able to:– Complete various primary and support activities in a

competitively superior manner, in order to develop and sustain a competitive advantage and earn above-average returns

Factors That Drive Focused Strategies

• The target niche is big enough to be profitable and offers good growth potential

• Large firms may overlook small niches.

• The industry has many different segments there by allowing focuser to pick competitively attractive niche

• A firm may lack the resources needed to compete in the broader market

• A firm is able to serve a narrow market segment more effectively than can its larger industry-wide competitors

• Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage

• The focuser has reservoir of customer goodwill and loyalty that it can draw on to help to keep away ambitious challengers

Competitive Risks of Focus Strategies

• A focusing firm may be “outfocused” by its competitors

• A large competitor may set its sights on a firm’s niche market

• Customer preferences in niche market may change to more closely resemble those of the broader market

Value-Creating Activities Associated with the Differentiation Strategy

Summary   Broad Differentiation Focus Differentiation Best Cost provider

Strategic target a broad cross-section of the

market

Narrow market niche where buyer needs and preferences are distinctively different

Value conscious buyer

Basis of competitive advantage

ability to offer buyers something attractively different from competitor

Attributes that appeal specifically to niche members

ability to give customers more value for money

Product line Many product variation, wide

selection, emphasis on differentiating features

Features and attributes are tailored to the test and requirement of niche members

Items with appealing attributes & upscale features

production strategy

build in whatever features buyer are willing to pay for , strive for product superiority

custom made product that match the test and requirement of niche members

Build in upscale features and appealing attributes at lower cost than rivals

marketing strategy tout differentiating features ,

charge premium price to cover extra cost

communicate how product offering does the best job of meeting niche buyer expectation

tout delivery of best value , either deliver comparable features at lower price than rivals or match rivals on prices and provide better features

Key to sustaining strategy

Stress consistent innovation to stay ahead of imitative competitors, concentrate on few differentiating features

stay committed to serving niche better than rivals, don't blur the firm image by entering other market segment, or adding other product to widen market appeal

unique expertise in simultaneous managing cost down while incorporating upscale features and attributes

Thank you