Chapter 9 - Differentiation advantage. This chapter presents the following content: The nature of differentiation, differentiation and segmentation, analyzing differentiation: the demand side, analyzing differentiation: the supply side, bringing it all together: value chain analysis. | Differentiation Advantage The nature of differentiation Differentiation and segmentation Analyzing differentiation: the demand side Analyzing differentiation: the supply side Bringing it all together: value chain analysis OUTLINE 23 The Nature of Differentiation TOTAL CUSTOMER RESPONSIVENESS Differentiation not just about the product, it embraces the whole relationship between the supplier and the customer. INTANGIBLE DIFFERENTATION Unobservable and subjective characteristics relating to image, status, exclusivity, identity TANGIBLE DIFFERENTATION Observable product characteristics: size, color, materials, etc. performance packaging complementary services DEFINITION: Providing something unique that is valuable to the buyer beyond simply offering a low price. (M. Porter) THE KEY IS CREATING VALUE FOR THE CUSTOMER 24 Differentiation and Segmentation DOES DIFFERENTIATION IMPLY SEGMENTATION? --Not necessarily, depends upon the differentiation strategy: BROAD SCOPE DIFFERENTIATION: Appealing to what is in common between different customers (McDonalds, Honda, Gillette) FOCUSED DIFFERENTIATION: Appealing to what distinguishes different customer groups (MTV Harley-Davidson, Ralph Lauren) DIFFERENTIATION: is concerned with how a firm distinguishes its offerings from those of its competitors (. How the firm competes) SEGMENTATION: is concerned with which customers, needs, localities a firm targets (. Where the firm competes) 25 Differentiation vs. Cost Leadership as a Basis for Competitive Advantage Highest return on equity among top 200 US companies, 2002 (%) (%) Colgate Palmolive Gillette Caremark Rx . Heinz American Standard Pfizer Yum Brands Dell Computer Kellogg TJX Anheuser-Busch Oracle Nextel Communications PepsiCo Sara Lee 3M Altria Group Eli Lilly Wyeth Sysco QUESTION: Which is the primary basis for competitive advantage in the above companies: cost or . | Differentiation Advantage The nature of differentiation Differentiation and segmentation Analyzing differentiation: the demand side Analyzing differentiation: the supply side Bringing it all together: value chain analysis OUTLINE 23 The Nature of Differentiation TOTAL CUSTOMER RESPONSIVENESS Differentiation not just about the product, it embraces the whole relationship between the supplier and the customer. INTANGIBLE DIFFERENTATION Unobservable and subjective characteristics relating to image, status, exclusivity, identity TANGIBLE DIFFERENTATION Observable product characteristics: size, color, materials, etc. performance packaging complementary services DEFINITION: Providing something unique that is valuable to the buyer beyond simply offering a low price. (M. Porter) THE KEY IS CREATING VALUE FOR THE CUSTOMER 24 Differentiation and Segmentation DOES DIFFERENTIATION IMPLY SEGMENTATION? --Not necessarily, depends upon the differentiation strategy: BROAD SCOPE DIFFERENTIATION: .
