Product Differentiation

Chapter 5
Provides products that customers perceive as being unique in ways that are important to then and, because this uniqueness offers value, customers are willing to pay a premium price for them.
Customized products
differentiating on as many features as possible
A differentiated product must
fills one or more need better than the products of competitors
Three categories of differentiation
product attributes, firm to customer relationships, firm linkages
Components of product attributes
features (oakley), complexity (swiss knife), timing of introduction, location (cracker barrel)
Firm to customer relationships
customization, consumer marketing (brand loyalty), reputation (charity)
Firm Linkages
among functions in the firm, product mix, other firms, distribution channels (krispy kream), service and support
Risks of differentiation
cost of uniqueness too high (cantonese goose), means of differentiation no longer provides value (silk carpets), customer learning (mcdonald's coffee vs. starbucks)
The key to product differentiation is
customer loyalty
Exploiting a fragmented industry (through differentiation)
branding (kellog's corn flakes)
Exploiting an emerging industry (through differentiation)
First mover advantage (Nokia with digital phones, youtube)
Exploiting a mature industry (through differentiation)
redefining product or adding services (gasoline with additives)
Exploiting a declinging industry (through differentiation)
exploiting niches, serving those with strong needs (netflix)
Rareness (of a differentiated product)
assumed to be rare by definition
Imitability (of a differentiated product)
cost disadvantages will deter imitation
What is the best organizational structure for product differentiation strategy?
U-Form (functional) with cross functional teams
Can a firm pursue cost leadership and product differentiation at the same time
Yes (Southwest, Toyota) and no (Walmart, Rolex)
Typical international strategy for cost leadership
Global (standard product)
Typical international strategy for product differentiation
Multi-domestic (local responsiveness)