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Business Level Strategy: Product Diversification

Business Level Strategy: Product Diversification. Learning Objectives:

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Business Level Strategy: Product Diversification

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  1. Business Level Strategy:Product Diversification Learning Objectives: Understand the bases of product differentiation and which might lead to competitive advantage; organizing to support product differentiation; pitfalls of adopting this business-level strategy; whether cost leadership and product differentiation can be simultaneously implemented; strategy implications of industry life-cycle.

  2. The Concept of Generic Strategies …strategies available to any firm to achieve competitive advantage…

  3. Product features Intra-firm linkages Timing Location Product mix Inter-firm linkages Reputation Product customization Product complexity Consumer marketing Distribution channels Service and support Product Differentiation Ways a company can successfully differentiate? Examples of successful differentiation?

  4. A product differentiation strategy is valuable to the extent it neutralizes threats and exploits opportunities. How does a product differentiation strategy neutralize the following treats? Threat of Entry Threat of Rivalry Threat of Substitutes Threat of Buyers Threat of Suppliers Product Differentiation and VRIO Framework

  5. A product differentiation strategy is rare to the extent that firms are successful in creatively differentiating their products. Product Differentiation and VRIO Framework

  6. Product Differentiation and VRIO Framework Which ones are valuable? Rare? Costly to duplicate? • Reputation • Distribution channels • Intra-firm linkages • Timing • Location • Service and support • Inter-firm linkages • Product customization • Product mix • Consumer marketing • Product complexity • Product features

  7. Why Are These Bases Costly to Duplicate?

  8. Organizing to Implement Product Differentiation • More complex organizational structure(more layers, larger support staff, broader range of business) • Management control systems(broader decision-making, policy of experimentation) • Compensation policies differ(reward for risk-taking, creativity, teamwork)

  9. Pitfalls of Product Differentiation Strategies • Uniqueness that is not valuable • Differentiation may be too costly • Differentiation may be easily imitated • Dilution of brand • Perceptions of differentiation may vary or change

  10. Implementing Both Cost Leadership andProduct Differentiation Strategies Can firms succeed implementing both strategies ?

  11. The Pros….. Product differentiation leads to increased sales, which lead to economies of scale, learning and other cost reductions Empirical research supports dual strategies Porter has backed off the “stuck in the middle” argument The Cons….. Requires different organizational structures Management control systems differ Differences in compensation policy design Implementing Both Cost Leadership andProduct Differentiation Strategies

  12. Strategy Implications of Industry Life-Cycle Determinants of success may differ depending on the stage of industry life-cycle Introduction Newly formed – innovations, changes in demand, needs Rapid increases in capacity and unit sales, dominant technology emerges Growth Maturity Slowing growth rate, increased competition, experienced customer base. Decline Consistent decline in unit sales, overcapacity

  13. Strategies and Stage of Industry Life-Cycle: Emerging What does it take to succeed in the Introduction / Emerging stage? • Technological leadership • Experience curve • Dominant technology • Financial resources • Preempt strategically valuable assets • Create customer switching costs / loyalty Industry Examples?

  14. Strategies and Stage of Industry Life-Cycle :Growth Stage What does it take to succeed in the growth stage? • Marketing and promotion aimed at brand recognition • Expanding the product line • Financial strength to accommodate growth • Strong marketing channels Industry Examples?

  15. Strategies and Stage of Industry Life-Cycle :Mature What does it take to succeed in the mature stage? • Product refinement – extensions, packaging • Emphasis on process innovation • Lower costs • Higher quality • Differentiation / emphasis on service • Horizontal integration • International expansion Industry Examples?

  16. Strategies and Stage of Industry Life-Cycle :Decline What does it take to succeed in the declining stage? • Market leadership • Focus on growth segments – niche strategy • Emphasize production and distribution efficiency • Gradually harvest the business • Prune the product line • Preferred customer selection • Defer equipment maintenance and repair • Divestment Industry Examples?

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