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Differentiation

Differentiation. Paul C. Godfrey Mark H. Hansen Marriott School of Management. What strategists need to know:. What are bases of differentiation ? What ar e the costs of imitation ? How can managers exploit bases of differentiation to create competitive advantage?.

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Differentiation

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  1. Differentiation Paul C. Godfrey Mark H. Hansen Marriott School of Management

  2. What strategists need to know: What are bases of differentiation? What are the costs of imitation? How can managers exploit bases of differentiation to create competitive advantage?

  3. Competitive or Business Level Strategies Two Strategies Cost Leadership: • generate economic value by having lower costs than competitors Example: Wal-Mart Product Differentiation: • generate economic value by offering a product that customers prefer over competitors’ product Example: Harley-Davidson

  4. Product Differentiation A competitive or business level strategy intended to: • increase the perceived value of the focal firm’s products and/or services relative to the value of competitor’s products and/or services • create a customer preference for the focal firm’s products and/or services

  5. Bases of Differentiation A base of differentiation must fill some customer need: • safety • beauty • image • furthering a cause • quality • status • reliability in use • hunger • service • nostalgia • style • comfort • belonging • accuracy • taste • cleanliness A differentiated product fills one or more needs better than the products of competitors

  6. Bases of Differentiation Almost anything can be a base of differentiation • the wide range of customer needs can be filled by a wide range of bases of differentiation • tangible thing (product features, location, etc.) • intangible concept (reputation, a cause, an ideal, etc.) • limited only by managerial creativity Example: Fred Smith and FedEx

  7. Bases of Differentiation Product Transaction Relationship Service Lifestyle

  8. The Value of Product Differentiation Focal Firm with Differentiated Product Focal Firm with No Differentiated Product MCff Pff ATCind ATCff Pind Dind Dff MRff Qff Qind Above Normal Profits

  9. Costs of Imitation Logic of costs of imitation • if would-be imitators face a cost disadvantage of imitation, they will rationally choose not to imitate (imperfect imitability or inimitability) Sources of costs of imitation • historical uniqueness • patent • causal ambiguity • capital requirements • social complexity • brand equity

  10. Exploiting Differentiation Most important differentiation is in the mind!  most effective differentiation is in the mind when backed by experience (integrity)  signal differentiation often  to potential customers  to current customers  to competitors Example: Kellogg’s Frosted Flakes

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