differentiation strategy in strategic management

The cost of a value activity is always affected by policy choices a firm makes. As with a focused low-cost strategy, narrow markets are defined in different ways in different settings. Luckily for Coca-Cola, the firm does attract a great many buyers. The principal uniqueness drivers are the following: Attempts to achieve differentiation usually raise costs. What is an example of a differentiated business near your college or university? The big risk when using a differentiation strategy is that customers will not be willing to pay extra to obtain the unique features that a firm is trying to build its strategy around. Differentiation has several potential advantages: Focus is essentially a strategy of segmenting markets. The framework aims to help a firm understand the behavior of cost in a broad, holistic way that will guide to search for a sustainable cost advantage and contribute to the formulation of contribute strategy. Cost behavior depends on a number of structural factors that influence cost, which Porter terms cost drivers. For example, if your firm wants to grow, this usually involves additional investment of capital. A firm has a cost advantage if its cumulative cost of performing all value activities is lower than competitors' costs. first, failing to attain or sustain the strategy; second, for the value of the strategic advantage provided by the strategy to erode with industry evolution. He suggests there are only two "generic " competitive positions: cost leadership and differentiation. 2. Both variants of the focus strategy rest on differences between a focuser's target segments and other segments in the industry. THE ROLE OF DIFFERENTIATION STRATEGY ON HUMAN RESOURCE MANAGEMENT PRACTICES AND COMPETITIVE ADVANTAGE OF FIRMS LISTED ON THE NAIROBI SECURITIES EXCHANGE Margaret Muthoni Kariuki University of Nairobi, Department of business administration, Nairobi, Kenya magmuth@uonbi.ac.ke, magmuth@yahoo.com Peter K’ Obonyo University of Nairobi, Department of … Differentiation Strategy found in: Types Product Differentiation Strategies Ppt PowerPoint Presentation Infographic Template Designs Cpb, Quality Control And Quality Assurance Differentiation Ppt PowerPoint Presentation Diagrams,.. Ta b l e 1 Comparison of cost and differentiation strategies. You can view this video here: https://www.youtube.com/watch?v=NshI_qoaf7g&feature=emb_logo. Differentiation involves achieving competitive advantage through pinpointing product or service attributes that customers perceive as valuable and positioning the firm to meet those demands betters than the competition. The differentiation strategy is one of the three main marketing strategies, along with the low-cost provider strategy and the focus strategy. Differentiation Strategy found in: Types Product Differentiation Strategies Ppt PowerPoint Presentation Infographic Template Designs Cpb, Quality Control And Quality Assurance Differentiation Ppt PowerPoint Presentation Diagrams,.. We think incentives are very important. Peter Williamson, Transnational Strategy, The Palgrave Encyclopedia of Strategic Management, 10.1057/978-1-137-00772-8, (1773-1776), (2018). ... Companies that pursue a Differentiation … This free online corporate strategy course will introduce you to the concept of corporate strategy. One of the most commonly-used strategic typologies was developed by Porter (1980; 1985), who identified two generic strategies: product differentiation and cost leadership. Differentiation strategy is a way for a business to distinguish itself from the competition. Therefore, each generic strategy involves different risks which are shown in Table C. Michael Porter (1985; 1985) proposes a three-stage progression to achieving competitive advantage: According to Porter, the starting point of strategy must be the external environment. This part of this chapter describes the way a firm can choose and implement a generic strategy and sustain competitive advantages. To the extent that differentiation remains in place over time, buyer loyalty may be created. Cost dynamics can lead to significant changes in industry structure and relative cost position. Porter's second stage involves the firm deciding on a competitive strategy in order to achieve "sustainable competitors advantage." Team Management ; Strategy Tools ; Problem Solving ... and Differentiation Focus means pursuing strategic differentiation within a focused market. Therefore a differentiator should not completely forget price and a low-cost producer should not forget quality. services provided (e.g., credit, delivery, or repair), intensity of an activity adopted (e.g., rate of advertising spending), content of activity (e.g., the information provided in order processing), technology employed in performing an activity (e.g., precision of machine tools, computerization of order processing), quality of inputs procured for an activity, procedures governing the actions of personnel in an activity (e.g., service procedures, nature of sales calls, frequency of inspection or sampling), skill and experience level of personnel employed in an activity, and training provided, skill and experience level of personnel employed in an activity and training provided. The placement of our outlets is another key factor. This would seemingly make creating a differentiated brand in the salt business next to impossible. Meanwhile, Pepsi also has attracted a large set of brand-loyal customers that Coca-Cola struggles to steal. Coca-Cola’s headquarters are in Atlanta, and loyalty to the firm is especially strong in Georgia and surrounding states. By applying this strategy, carriers have lost their source of competitive advantage by narrowing the strategic cost gap. The result of not having the lowest costs, not being really differentiated in the minds of the consumer, or not successfully targeting a market segment results in a weak profitability and market picture. A focused differentiation strategy requires offering unique features that fulfill the demands of a narrow market (Table 6.7). They are; Broad Differentiation Strategy, and Focused Differentiation Strategy. Success comes with an effort to do your best in executing each program. As with a focused low-cost strategy, narrow markets are defined in different ways in different settings. Procurement has strategic significance in almost every industry. It draws up at the top level by the senior management of a diversified company. Porter terms this cost dynamics. Crossref Shantanu Banerjee, Sunil Venaik, Paul Brewer, Analysing corporate political activity in MNC subsidiaries through the integration-responsiveness framework, International Business Review, 10.1016/j.ibusrev.2018.04.001, (2018). A firm must consider how the absolute and relative cost of value activities will change over time independent of its strategy. A business owner who relied on a mainframe to run her company could not afford to have her mainframe out of operation for long. Full-time workers are better trained and typically have less turnover. Meeting buyer needs often involves coordinating linked activities. Specifically, the brand loyalty that customers feel to a differentiated product makes it difficult for a new entrant to lure these customers to adopt its product. For households and individual consumers, the cost of a product includes not only financial costs but also time or convenience costs. Differentiation relies on the concept that customers will pay more for an item if they perceive that it is different and if the basic for the difference is valued by the customer. IBM’s message to customers was that they would pay more for IBM’s products but that this was a good investment because when a mainframe needed repairs, IBM would provide faster and better service than its competitors could. https://www.youtube.com/watch?v=NshI_qoaf7g&feature=emb_logo, http://money.cnn.com/2007/10/31/news/companies/Kapner_Nautica.fortune/index.htm, https://investors.coca-colacompany.com/filings-reports/annual-filings-10-k, https://s2.q4cdn.com/056532643/files/doc_financials/2019/Q4/Q4FY19-Earnings-Release-Final.pdf, https://en.wikipedia.org/wiki/G.I._pocket_stove#/media/File:Patent_Drawing_for_Coleman_Model_520_Stove.jpg, https://commons.wikimedia.org/wiki/File:Patent_Drawing_for_Coleman_Model_520_Stove.jpg, Next: 6.5 Focused Cost Leadership and Focused Differentation, Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, Although salt is a commodity, Morton has differentiated its salt by building a brand around its iconic umbrella girl and its trademark slogan of “When it rains, it pours.”. “Counterfeit Rolex watches seized by US CBP.” Public Domain. It can provide entry barriers for competitors as a result of customer loyalty and the need for a competitor to overcome the product or service uniqueness. Fundamentally, the risks is pursuing the generic strategies are two: However, the three strategies are predicted on erecting differing kinds of defense against the competitive forces. Thus, a differentiation strategy helps create barriers to entry that protect the firm and its industry from new competition. The best way to implement differentiation strategy is to invent or innovate. $35.80 for a 2-page paper . However, the need to satisfy a narrow market demand means that the desire of uniqueness is taken to the next level by firms in a focused differentiation strategy. The Cost Leadership Strategy. Its purpose is to aim and create distinction in competitive marketing; therefore, enterprises must decide what or how to use different ways to complete the activities or procedure or different actions, to be distinct from the opponents. Not a chance. Coleman camping equipment offers a good example. Porter's generic strategies are ways of gaining competitive advantage – in other words, developing the "edge" that gets you the sale and takes it away from your competitors. So, overall, we are more convenient than most of our competitors. Successful use of a differentiation strategy depends on not only offering unique features but also communicating the value of these features to potential customers. Uniqueness quality of differentiation s… Every value activity employs purchased inputs of some kind, ranging from raw materials used in purchased fabrication to professional services, office space, and capital goods. The strategy had worked for IBM in other areas. The presence of counteracting cost drivers implies the need for optimization. Ketchen, D. J., & Short, J. C. (2010). Diagnose the costs drivers of each value activity and how they interact. Keywords: Strategy Management, Retailer, Differentiation Strategy, Transnational, Marketing INTRODUCTION 5P … We also do mechanical work that other quick lube businesses don’t do. Which generic strategy is a chosen is a function of the firm's strengths and weaknesses combined with the competitor's positions in the market. Differentiation strategy A differentiation strategy seeks to provide products or services that offer benefit that are different from those of competitors and that are widely valued by buyers. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. In comparison, Walmart’s cost leadership strategy delivered a margin of under 4% in 2010. Other sections describe: how a firm can gain a sustainable cost advantage, how a firm can differentiate itself from its competitors, how industries can be segmented, the relationship between technology and competitive advantage. Ensure that cost reduction efforts do not erode differentiation, or make a conscious choice to do so. Prepared By Kindly restrict the use of slides for personal purpose. Express Oil Change tries to provide a unique level of service, and the firm is content to let rivals offer cheaper prices. Beyond existing competitors, a differentiation strategy also creates benefits relative to potential new entrants. By innovating... 2) Product-level differentiation strategy –. Eight decades later, the Coleman Stove remains a must-have item for campers. Reviews. In terms of the two competitive dimensions described by Michael Porter, using a differentiation strategy means that a firm is competing based on uniqueness rather than price while continuing to seek to attract a broad market (Porter, 1980). Look out through their eyes and re-examine every way in which they solve their problem with your product offering. This comparison of profit margins and overall profit levels illustrates why a differentiation strategy is so attractive to many firms. A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. Chapter 11: Leading an Ethical Organization: Corporate Governance, Corporate Ethics, and Social Responsibility, 11.4 Corporate Ethics and Social Responsibility, 11.5 Contemporary Questions of Corporate Ethics. Such a strategy describes the company’s overall corporate strategy. The cost behavior of suppliers will have an important influence on both the cost of inputs and the ability of a firm to exploit supplier linkages. The cost analysis at the segment level must often supplement analysis at the business unit level. The message that such a firm conveys to customers is that you will pay a little bit more for our offerings, but you will receive a good value overall because our offerings provide something special. Supplier cost behavior is analyzed in the same way as a firm's cost behavior. He had it in a bag, with bundles of it wrapped in blue tape. This differentiation strategy involves using the characteristics of the product you market to differentiate from your competitors. Chapter 1: Mastering Strategy: Art and Science, 1.3 Intended, Emergent, and Realized Strategies, 1.5 Contemporary Critique of Strategic Management, 1.6 Understanding the Strategic Management Process, II. I. Table 9-2 lists some of the ways in which a firm's product itself can lower the buyer's direct cost of use. In some cases, customers may simply prefer a cheaper alternative. Cost advantage is one of two types of competitive advantage a firm may possess. He believes that external environment defines what the organization needs to achieve and, therefore, what its strategy should be. Lovers of the outdoors must pay more to purchase Coleman’s goods than they would to obtain lesser brands, but having equipment that you can count on to keep you warm and dry is worth a price premium in the minds of most campers. Differentiation strategy is built on a belief that one needs a clear and unique positioning. If camping equipment such as sleeping bags, lanterns, and stoves fail during a camping trip, the result will be, well, unhappy campers. Morton has differentiated its salt by building a brand around its iconic umbrella girl and its trademark slogan of “When it rains, it pours.” Would the typical consumer be able to tell the difference between Morton Salt and cheaper generic salt in a blind taste test? 0.33%. http://money.cnn.com/2007/10/31/news/companies/Kapner_Nautica.fortune/index.htm. Strategic Management, Strategic Thinking, Strategic Planning, Business Strategy. For example, the procurement of raw materials and other inputs can affect of the end product and hence differentiation. Identify the appropriate value chain and assign costs and assets to it. The focus of differentiation strategy is to creative the product and service, which is considered to be unique and special by the industry and customers. The Walt Disney Company has developed incomparable customer service standards (“the happiest place on earth”) and numerous well-known characters such as Mickey Mouse, the Little Mermaid, and Captain Jack Sparrow that help differentiate their movies, theme parks, and merchandise. Product Differentiation Strategy – Market Category Product Differentiation Concept: Whole product Another great idea is to focus on other elements of the product which the rest of the company provides. Offerings such as Hot Wheels cars and the Barbie line of dolls highlight toy maker Mattel’s differentiation strategy. Differentiation means making an organization or brand stand out by providing unique features, benefits, services or other elements of your solution. From a customer’s perspective, a person would be foolish to pay more for an IBM personal computer since IBM did not offer anything unique. A firm lowers buyer cost or raises buyer performance through the impact of its value chain on the buyer's value chain. Strategic management is the process of strategic analysis of an organization, strategy-focused objective-setting, strategy formulation, strategy implementation, and strategic evaluation and control. A differentiation strategy involves the firm creating a product or service, which is considered unique in some aspect that the customer values. Strategic Differentiation Management: A Transnational Study of Costco Fang-Mei Tai, National Penghu University of Science and Technology, Taiwan ... Differentiation Strategy Value Chain that impacts on consumers’ re-purchase and derivative behavior ... repurchase derivative/Satisfaction behavior. Some important strategies, the strategies are cost leadership (an integrated set of actions designed to produce products at the lower cost), differentiation strategy (an integrated set of actions designed to produce products that customers perceive as being different in ways that are important to them) (class lecture sheet). In this phase, the financial situation of your firm must be taken into account. Approaches to differentiating can take many forms: design or brand image, technology, (...) features, customer service, dealer network, or other dimensions" (Michael E. Porter ). The relationship between uniqueness and cost drivers takes two related forms: A successful differentiator finds ways of creating value for buyers that yield a price premium in excess of the extra cost. A focused differentiation strategy requires offering unique features that fulfill the demands of a narrow market (Table 6.7). Organizational Requirements For Generic Strategies, Generic Business Unit Strategies - Summary. Hire a subject expert to help you with Differentiation strategy. Overall, the firm made a profit of just under $9.0 billion on sales of just over $37.3 billion in 2019. Secondly, corporate strategy is a type of strategy in strategic management. For example, products that imitate the look and feel of offerings from Ray-Ban, Gucci, and Patagonia are attractive to many value-conscious consumers. Another method of identifying cost drivers is for a firm to examine its own internal experience. Firms such as these must work hard at product development and marketing to ensure that enough customers are willing to pay a premium for their goods rather than settling for knockoffs. In our country, a diversified company is known as a ‘group of companies’, such as Bashundhara, Partex, Beximco, and Square Group. Manu Melwin Joy Assistant Professor Ilahia School of Management Studies Kerala, India. In turn, strong margins mean that the firm does not need to attract huge numbers of customers to have a good overall level of profit. The video for this lesson discusses differentiation strategies. CNNMoney. How is Express Oil Change being positioned relative to other firms, such as Super Lube, American LubeFast, and Jiffy Lube? Focused differentiation is the second of the two focused strategies. Controlling integration. 4 stars. This is “Differentiation”, section 5.3 from the book Strategic Management: Evaluation and Execution (v. 1.0). Pepsi and other brands have a hard time convincing loyal Coca-Cola fans to buy their beverages, even when offering deep discounts. Loyal customers are very desirable because they are not price sensitive. This philosophy is not a slogan for us. The links between a firm and its buyer's value chain that are relevant to buyer value depend on how the firm's product is actually used by the buyer. Focused differentiation is the second of two focus strategies. its relative position vis-a-vis the cost drives of each activity. The value chain of a firm is the grouping of primary and secondary activities that make up the product or service provided to the customer (see Figure 9-4). Strategic analysis is involved with analyzing the industry in which the organization is operating its business and analysis of both the external and internal environmental factors. Therefore, the unique features of a focused differentiation strategy are often specialized. As a result, they must be offered at very low prices to move from store shelves into shopping carts. Focused Differentiation Strategy Cost Leadership Strategy Cost Leadership Strategy Focused Differentiation Strategy Strategic Management Process TERMS IN THIS SET (79) Michael Porter defined _____ as an attempt to achieve sustainable competitive advantage by preserving what is … Linkages can lead to competitive advantage in two ways: optimization and coordination. The final component of differentiation strategy is sustainability. Name three ways businesses that provide entertainment that might better differentiate their services. Competitive strategy: Techniques for analyzing industries and competitors. Understanding the value chains of industrial, commercial, and institutional buyers is easy because of their similarities to that of a firm. Differentiation provides insulation against competitive rivalry because of brand loyalty by customers and resulting lower sensitivity to price. 18.28%. The term strategy is derived from a Greek word strategos which means generalship. Differentiation Strategy ate University Williams Strategic Management, Section 003 Instructor March 6, 2014 Abstract To succeed in today's environment, businesses need to lead through increased complexity and volatility, drive operational excellence and enable collaboration across enterprise functions, develop higher quality leadership and talent, manage amidst constant change …
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