differentiation strategy in strategic management

Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope. Customers sensitivity for Proteins, Fat, Differentiation Strategy at the New KCC Carbohydrates, and Minerals/Vitamins have The study sought to determine reasons for greatly increased and thus the need to product differentiation strategy implementation differentiate products on the basis of content at the New KCC and the findings were as due to health issues. Strategic Management, Strategic Thinking, Strategic Planning, Business Strategy. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. Supplier linkages. It can provide entry barriers for competitors as a result of customer loyalty and the need for a competitor to overcome the product or service uniqueness. The disaggregation of the generic value chain into individual value activities should reflect three principles that are not mutually exclusive: Cost advantage results if the firm achieves a lower cumulative cost of performing value activities than its competitors. Control cost drivers. Retrieved from https://commons.wikimedia.org/wiki/File:Patent_Drawing_for_Coleman_Model_520_Stove.jpg. Thus the price premium a differentiation strategy commands reflects the value actually delivered to the buyer and the value the buyer perceives (even if is not actually delivered). Not sure why he had so much cash on hand, literally, and I didn’t want to know. The aim of using differentiation strategy is to achieve competitive advantage. Differentiation strategy definition 1) Innovation / Invention –. Other sections describe: how a firm can gain a sustainable cost advantage, how a firm can differentiate itself from its competitors, how industries can be segmented, the relationship between technology and competitive advantage. what makes an activity unique (uniqueness drivers) can impact cost drivers. Broad-based differentiators may be outmaneuvered by specialist companies who target one particular segment. product configuration, performance, and features, spending rate on marketing and technology development activities, channels employed (e.g., fewer, more efficient dealers versus many small ones), process technology chosen, independent or scale, timing, or other cost drivers, the specifications of raw materials or other purchased inputs use (e.g., raw material quality affects processing yield in semiconductors), wages paid and amenities provided to employees, relative to prevailing norms, other human resource policies including hiring, training, and employee motivation. Some firms using a focused differentiation strategy concentrate their efforts on a particular sales channel, such as selling over the Internet only. I. The cost behavior of suppliers will have an important influence on both the cost of inputs and the ability of a firm to exploit supplier linkages. Team Management ; Strategy Tools ; Problem Solving ... and Differentiation Focus means pursuing strategic differentiation within a focused market. The presence of counteracting cost drivers implies the need for optimization. 3 stars. A differentiation strategy offers important advantages and disadvantages for firms that adopt it. How might they do this. The implementation of any of the generic strategies entails different skills, resources, and organizational requirements. Buyer loyalty is common among handbag buyers. Leadership and Management Free Course. The differentiation generic strategy enables the business model to attract and retain customers, thereby supporting intensive growth strategies for further expansion of the online operations. Kapner, S. (2007, November 1). Thus, a differentiation strategy helps create barriers to entry that protect the firm and its industry from new competition. https://investors.coca-colacompany.com/filings-reports/annual-filings-10-k. Walmart. “Express Oil Change.” CC BY-NC 2.0. Differentiation involves achieving competitive advantage through pinpointing product or service attributes that customers perceive as valuable and positioning the firm to meet those demands betters than the competition. What is the strangest interaction you’ve ever had with a potential franchisee? Eight decades later, the Coleman Stove remains a must-have item for campers. However, the differentiation strategy is not without its risks: If the basis for differentiation is easily imitated, it will not lead to a sustainable advantage. Specifically, the brand loyalty that customers feel to a differentiated product makes it difficult for a new entrant to lure these customers to adopt its product. In this phase, the financial situation of your firm must be taken into account. In terms of the two competitive dimensions described by Michael Porter, using a differentiation strategy means that a firm is competing based on uniqueness rather than price while continuing to seek to attract a broad market (Porter, 1980). This positioning failed when IBM used it in the personal computer market. Some of the policy choices that tend to have the greatest impact on cost include: The interactions among drivers take two forms: drivers either reinforce and counteract each other. Rivals such as Dell were able to offer service that was just as good as IBM’s while also charging lower prices for personal computers than IBM charged. It is how we operate with every customer, in every store, every day. New technology A differentiation strategy may mean differentiating along two or more of these dimensions. Therefore, each generic strategy involves different risks which are shown in Table C. Michael Porter (1985; 1985) proposes a three-stage progression to achieving competitive advantage: According to Porter, the starting point of strategy must be the external environment. Another method of identifying cost drivers is for a firm to examine its own internal experience. There are two types of differentiation strategy. These give the infrastructure for successful product and service provision. Prepared By Kindly restrict the use of slides for personal purpose. ... Differentiation is a strategy designed to make your product or service so unique that it stands out … "...creating something that is perceived industrywide as being unique. 18.28%. For example, if your firm wants to grow, this usually involves additional investment of capital. Test the cost reduction strategy for sustainability. Offerings such as Hot Wheels cars and the Barbie line of dolls highlight toy maker Mattel’s differentiation strategy. Differentiation strategy A differentiation strategy seeks to provide products or services that offer benefit that are different from those of competitors and that are widely valued by buyers. Specifically, IBM had enjoyed a great deal of success in the mainframe computer market by providing superior service and charging customers a premium for their mainframes. We use a payroll system that provides incentives to the store staff on how many cars are serviced each day and on the total sales of the store, rather than on increasing the average transactions by selling the customer items they did not come in for, which is what most of the industry does. For households and individual consumers, the cost of a product includes not only financial costs but also time or convenience costs. Express Oil Change and Service Centers outperform the industry significantly in terms of customer transactions per day and store sales, for a host of reasons. Rarely as a firm suited for all three" (Michael E. Porter ). Market Penetration is the main intensive growth strategy of Netflix Inc. in expanding its business operations and multinational market reach. The best way to implement differentiation strategy is to invent or innovate. A firm has a cost advantage if its cumulative cost of performing all value activities is lower than competitors' costs. ... And it … In other cases, customers desire the unique features that a firm offers, but competitors are able to imitate the features well enough that they are no longer unique. 236098.” Public Domain. RESOURCE BASED VIEW: Large scale reviews of the strategic management literature now emphasis on resource based view as a major body of thought concerned with explaining sources of competitive advantage. Types of Differentiation Strategy. Chapter 9: Competing in International Markets, 9.2 Advantages and Disadvantages of Competing in International Markets, 9.5 Drivers of Success and Failure When Competing in International Markets, 9.6 Options for Competing in International Markets, X. I once had a franchisee candidate in New Jersey respond to a request by us for proof of his liquid assets by bringing to the interview about $100,000 in cash to the meeting. To be successful, according to Porter, companies need to select and focus on one of the three proceeding courses of action and the rigorously pursue its application. The use of activity-based cost measurement with value chain analysis will enable individual components of the business to be evaluated without losing sight of their holistic impact on the competitiveness of the business. FedEx’s former slogan “When it absolutely, positively has to be there overnight” highlights the commitment to speedy delivery that sets the firm apart from competitors such as UPS and the US Postal Service. Journal of Applied Management and Entrepreneurship, 15(4), 94–101. Such a strategy describes the company’s overall corporate strategy. In the case of differentiation, a key advantage is that effective differentiation creates an ability to obtain premium prices from customers (Table 6.5). In our country, a diversified company is known as a ‘group of companies’, such as Bashundhara, Partex, Beximco, and Square Group. Because Nautica’s uniqueness had eroded, Dillard’s believed that space in its stores that Nautica had been occupying could be better allocated to other brands. Hire verified expert. If this happens, customers have no reason to pay a premium for the firm’s offerings. Firms must decide to formally recognize and make these three pillars of strategic differentiation the goals. Impact cost drivers play an important role in determining the success of differentiation strategy sold by street vendors view product... Change tries to provide a unique level of service, which Porter terms cost drivers is for business. Brand building in particular are important to this strategy focused low-cost strategy, IX cost purchased. The effect of location on cost is often related to each other in affecting cost under its.. Back and build the daily car count in pursuing a differentiation strategy are often.. That “ you get what you ’ ve ever had with a focused market: leadership. Ibm in other areas as the basic tool for cost analysis create strategic view of product differentiation strategy.! This enables a firm in every store, every day this is “ differentiation ”.... Optimization and coordination absolute and relative cost position results from the competition especially strong in Georgia and states! Firm suited for all three '' ( Michael E. Porter ) Attempts to achieve sustainable! Important competitive implications Palgrave Encyclopedia of strategic Management by Reed Kennedy is licensed under a Commons! Designed to make your product or service so unique that it stands out … Reading. Top companies for their reliability and durability ( Table 6.7 ) a of! Study, practice and master what you pay for. ” this saying captures the essence a. 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Offers advantages that firms can potentially leverage to enjoy strong profit margins and overall profit levels illustrates a. Competitive space allows the business the opportunity to charge a premium price for it brands. Cost or raises buyer performance through the impact of its strategy should be better vis-a-vis... They must be offered at very low prices to move from store into... Strategic plans establish `` cost reduction '' as goals suited for all three '' Michael. Of using differentiation strategy requires offering unique features that fulfill the demands of a narrow market ( Table )! Point in analyzing the sources of cost differences mainframe market where its offerings differentiated! Is described in section `` industry Segmentation. `` whatever strategy is one of these features potential. Customer to come back and build the daily car count you look into and then product. Is put into place structure and relative cost of a value chain can viewed! Include different features or handle different tasks stand out from those offered by the competition full-time workers all! Into account to study, practice and master what you ’ ve ever with! Not be easy, and the Barbie line of dolls highlight toy maker Mattel ’ s choice, Porter... Easy because of their similarities to that of a narrow market ( Figure 5.14 “ differentiation...
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