product differentiation

I’m

different!

Product Di erentiation

One of two (or many) ways business gains competitive advantage.

Summary of “Strategic Management and Competitive Advantage”, Chapter 5

by Jay B. Barney and William S. Hesterly.

ff

by Jay B. Barney and William S. Hesterly.

Presenters: Dwi Arti Anugrah, Endro Catur Nugroho, Marlisa Kurniati, Tri Kuncoro Wati

Faculty of Psychology, Universitas Indonesia, 2013

Information in this document is intended for academic purposes only.

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Advantage

How?

• Cost Leadership

• Product Differentiation

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Product Product Product

Differentiation

Product

Differentiation“A business strategy whereby firm

attempt to gain a competitive

advantage by increasing the

perceived value of their products

or services relative to the

perceived value of other firms’

products or services”

(Barney & Hesterly, 2012)

“A business strategy whereby firm

attempt to gain a competitive

advantage by increasing the

perceived value of their products

or services relative to the

perceived value of other firms’

products or services”

(Barney & Hesterly, 2012)

Product Differentiation

is about

Customer Perception

Why Differentiate?

� Focus on specific market� Focus on specific market

� Price war competition

� Declining industry

� Others?

How to Differentiate Product?

Focus on:

Attributes of Relationship with Linkages within or Attributes of

products:

Relationship with

customers:

Linkages within or

between firms:

1. Features

2. Complexity

3. Timing

4. Location

5. Customization

6. Marketing

7. Reputation

8. Among functions within

a firm

9. With other firms

10. Product mix

11. Distribution channels

12. Service and support

Product Featuresaltering the features

(materials, functions, etc.)

of a product1

JAVARA™ promotes Indonesia’s finest natural

gastronomic heritage: food biodiversity,

gastronomic-culture and craftsmanship. The

collaboration of the three allows JAVARA to create

artisanal, natural and organic food.

What makes the product different from other

organic foods:

1. No chemical additives (coloring, preservatives, 1. No chemical additives (coloring, preservatives,

bleaching and flavoring)

2. Fair trade, ensures sustainable agriculture and

apply that benefits the farmers, small producers

and the consumers.

Other exp: Mercedes Benz and “crumple zone”

Q: how to ensure product features equal to customer benefits?

Product Complexity

exposing product parts to

create sense of complexity

or simplicity2

Simply put, BreadTalk™ makes bread. It is aimed for

the urban community, reflected on its boutique

design, breadware, up to the look of the breads

themselves.

What makes the product different from other bread

Q: is complexity (read: sophistication) equal to customer benefits?

What makes the product different from other bread

boutiques’:

1. ‘See-thru’ kitchen to expose the complexity of

parts (and process) that made up a simple-

looking bread

Other exp: BIC and its “handful” parts

Product Locationphysical location is

‘strategic’ or preferable for

buying experience3

7-Eleven™ is a 24 hours convenience store which

provide fresh food and beverages products, groceries

with dine in facilities.


convenience stores:convenience stores:

1. Strategic location. “Dimana ada pengkolan, disitu

ada 7-Eleven”, it is where the street junction is.

2. Providing space for buyers to dine-in (read:

hangout), hence, buy more.

Other exp: Disney’s operation in Orlando, Florida

Q: can online replace physical location yet remain ‘strategic’?

Product Timing to Introduction

perception of ‘more

valuable’ due to perfect

timing (needs, trends, etc.)4

Mobile banking application was was made possible

in Indonesia as mobile phone was becoming mass in Indonesia as mobile phone was becoming mass

needs and mobile data communication was cheap.

Different to its previous technology (SMS-based,

which is still being used by telco operators), it uses

mobile data application installed in account holders’

smartphone.


banking methods:

1. It exploits the increasing (if not booming) mobile

and smartphone use in Indonesia as well as

Q: does being the first promise more likeliness to succeed?

and smartphone use in Indonesia as well as

availability of local apps developers.

2. It address traffic problem(esp. in Jakarta) which

was a significant barrier, especially for business

owners.

Other exp: Microsoft MS-DOS and introduction of PC

Product Customization

Products are customized for

particular customer

(applications)5

Dell introduced online configurator to custom-build

the right desktop and laptop especially for personal

and small business users.


Q: can customization (more expensive) serve non-premium customers?


desktops/laptops:

1. It allows buyers to custom-build their desktops

and laptops and preview the result before

deciding to buy.

Other exp: ORACLE and SAP

Product Marketing

altering customers’

perception through

positioning & repositioning6

L-Men was successful in stirring the minds of

thousands (or millions) of Indonesian men (straight,

gay, whatever) through its campaign: “you are how

your body looks” and promising that “it works”.


supplements:

1. It is marketed as a lifestyle product instead of

food supplement.

2. It links health (fitness) with style in a lifestly-

Q: does repositioning actually give more benefit to customers?

2. It links health (fitness) with style in a lifestly-

oriented market segment.

3. It bombarded the market with visuals that

attracted not just men to buy but also women

(or other men) to buy for their partners.

Other exp: Mountain Dew as the xtreme sport drink

Product Reputation

complex (and mostly long-

established) relationship

that enable firm and its

customers to ‘take risks’

7

Cosmos introduced rice-cooker, a big hit appliances

in many many Indonesian homes, with an

assumption that if their customers were buying their

popular rice box, they would also buy the rice-

cooker. The assumption was not all-wrong; the rice-

cooker survived to stand among other stronger

brands.

What makes the product different from other rice-

Q: is reputation only built over times? How startup build reps. quickly?

What makes the product different from other rice-

cooker:

1. Brand reputation that pomised (and have

proven) long-lasting home appliances: “ingat

beras, ingat Cosmos”.

Other exp: MTV and the world’s first reality show

Linkage Between Function

linking firm’s different

strengths and functions to

develop products (with

more benefit to customers)

8

In a pharmaceutical company where

units/departments are divided into areas of

specialties (genetics, biology, chemistry, etc) may

Q: what are the costs of being unable linking strength & functions?

specialties (genetics, biology, chemistry, etc) may

develop a ultidisciplinary team to explore and work

on new drug categories. Apart from being better

drugs, company’s ability to coordinate cross function

team is a competitive advantage.

Links with Other Firms

linking a firm’s products

with other firms’ products

to create more value to

each product.

9

When deciding to re-brand itself, KFC chose to When deciding to re-brand itself, KFC chose to

become “younger”. It chose to link with music, the

symbol of young(er) generation, without really

making music. Instead, it sells music CD in their meal

package. It has proven to increase their sales,

achieve the targeted image, and ... surprisingly

become popular CD outlets.

What makes the product different from other fast

food:

1. It worked with music producers to associate

Q: does co-branding equal to this strategy?

1. It worked with music producers to associate

both products (KFC’s fastfood and music CD) to

the young(er) generation.

2. It made CD sales easy(er), no need to go to

music stores.

Other exp: Barbie’s NASCAR series

Not the biggest, but Esia was known as provider of

Product Mix

a mix of products that are

technologically linked or

purchased simultaneously

by customers

10

Not the biggest, but Esia was known as provider of

cheap telecommunication. It could only survive –

and lead the market – by increasing traffic, especially

voice. Because technology was not Esia’s USP, it

mixed its product (mobile number and top-ups) with

cheap Chinese mobile devices and resulted in ‘free’

mobile phones for certain purchase of top-ups.

What makes the product different from other telco

products:

1. Customers felt that they received ‘free’ mobile 1. Customers felt that they received ‘free’ mobile

phones. In fact, Esia purchased cheap mobile

phones, reduce its profit margin on voice

communication and compensated by its traffic

boost.

Other exp: malls

Q: how to retain a product’s USP when sold/distributed as a mix?

Product Distribution

establishing different

distribution methods for

different targets

(customers, locations, etc.)

11

Oriflame is today one of the fastest growing beauty

companies selling directly their products to

consumers. Rather than investing in a chain of shops,

which would have taken time and been very costly,

the company decided to move its retail operations

into the homes of consumers.


Q:?


cosmetics:

1. It uses “gifts from friend” approach to direct-sale

their product way before word-of-mouth and

social media was even thought about.

Other exp: CocalCola and its local bottlers

Service and Support

providing certain level of

service and support

associated to products.12

Olympus was not the biggest camera maker in the

world. But in Indonesia, it led the increasing ILC and

mirrorrless camera market. It was also the first (if not

the only) to offer training for new Olympus ILC,

mirrorless and DSLR camera users, setting the

service bar higher even at the very beginning of user

experience.


Q: how to adjust price to match desired post-sales service and support?


camera:

1. It created educated customers by providing free

photography training which, for enthusiast

amateurs, was invaluable.

Other exp: GE and its independent service network

Attributes of Relationship with Linkages within or

How to Differentiate Product?

Focus on... only one?

Attributes of

products:

Relationship with

customers:

Linkages within or

between firms:

1. Features

2. Complexity

3. Timing

4. Location

5. Customization

6. Marketing

7. Reputation

8. Among functions within

a firm

9. With other firms

10. Product mix

11. Distribution channels

12. Service and support

The Value of Product Differentiation

Differentiation to Neutralize Threats

Five Forces Model

SubstitutesProduct Product

Differentiation

Q: during planning, how to forecast differentiation’s potential to reduce

threats?

Differentiation to Exploit Opportunities

Healtimie offers

healthier instant

noodle

First mover

Consolidation

Refinement XEROX copy paper

and the copying

machines/printers

market

noodle

Q: how product differentiation benefit a firm in declining industry?

Olympus PEN and

the ILC/Mirrorless

Sustained Competitive Advantage

Rarity -> creativity Imitability

Product Imitability

Low

-

cost Feature: Internet TV:

Sony -> LG (cheaper)

DIR

EC

T D

UP

LIC

AT

ION

SU

BS

TIT

UT

ES

ILC/Mirrorless

Ma

yb

e c

ost

lytiming reputation Service & support

mix

Link w/ other firms

customization

complexity

marketing

DIR

EC

T D

UP

LIC

AT

ION

SU

BS

TIT

UT

ES

Professional compact

1. Bigger sensors than compact

2. Bright fixed-lens

3. Manual controls

4. RAW shooting

5. Smaller size

Usu

all

y c

ost

lytiming

location

reputation

distribution

Service & support

Innovation Process: Case Study

3M is a global company that never

stops inventing and innovating.

Over the years, its innovations Over the years, its innovations

have improved daily life for

hundreds of millions of people all

over the world. 3M has made

driving at night easier, made

buildings safer, and made

consumer electronics lighter, less

energy-intensive and less harmful

to the environment. They even

helped put a man on the moon.

Every day at 3M, one

idea always leads to the

next, igniting

momentum to make

progress possible

around the world.


How 3M put innovation at the heart of its management and operation?management and operation?

Stretch Goals Empowerment Communication

Rewards and Recognition

Vision Foresight


Diverse Diverse Diverse

Robust

Network

Robust

Network

Robust

Network

Customer Customer Customer

Measured

Success

Measured

Success

Measured

Success

Celebrated

Experts

Celebrated

Experts

Celebrated

Experts

Innovation Centers

Bold

Talent

Bold

Talent

Bold

Talent

Diverse

Technology

Diverse

Technology

Diverse

Technology

Customer

Connection

Customer

Connection

Customer

Connection Innovation Centers

around the world

including Indonesia

Organization

Structure:

1. Cross divisional/functions

Structure:

1. Few layers

Pro

du

ct D

iffe

ren

tia

tio

n

Lea

de

rsh

ip

1. Cross divisional/functions

2. Matrix

3. Skunk works

1. Few layers

2. Simple reporting

3. Small corp. staff

4. Focus on narrow range of functions

Management Control:

1. Broad decision making

2. Managerial freedom

3. Policy of experimentation

Management Control:

1. Tight cost-control system

2. Quantitatve cost goals

3. Close supervision of labor, raw

materials, inventory etc

Compensation:

1. Reward for risk taking

2. Reward for creativity

3. Multidimensional performance

measurement

Pro

du

ct D

iffe

ren

tia

tio

n

Compensation:

1. Reward for cost reduction

2. Incentives for all employees involved

in cost reduction

Co

stLe

ad

ers

hip

materials, inventory etc

4. Cost leadership philosophy

Can the firm implement Cost Can the firm implement Cost

Leadership and Product

Differentiation simultaneously?

Yes? No?

Cost Leadership & Product Differentiation

YES, if: NO, if:• Market is substatially

large (sales volume)

• Firm is proven to

succesfully manage

internal contradiction

(and conflict)

• Product is low-priced

and cover large market

• Product is high-priced

and cover niche market

(and conflict)

QuestionQuestion

Presenters: Dwi Arti Anugrah, Endro Catur Nugroho, Marlisa Kurniati, Tri Kuncoro Wati

Faculty of Psychology, Universitas Indonesia, 2013

Information in this document is intended for academic purposes only.

product differentiation

Business

endro catur

dwi arti anugrah

productdifferentiationa

productsor

competitive

academic purposes

distribution

marlisa kurniati