Business Strategy Chapter 5 Where to Find Differentiation Opportunities in the Value Chain.

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S 1: Where  to  Find  Differentiation Opportunities  in  the  Value  Chain.

•Purchasing and procurement activities

•Product R&D and product design activities

•Production process / technology-related activities

•Manufacturing / production activities

•Distribution-related activities

•Marketing, sales, and customer service activities

Activities,Costs, & Margins of Suppliers.

Internally Performed Activities, Costs, & Margins.

Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners.

Buyer/User Value Chains.

S 2: How to Achieve a Differentiation-Based Advantage.

Approach  1

Incorporate product features/attributes that
lower buyer’s overall costs of using product.

Approach  2

Incorporate features/attributes that raise the
performance a buyer gets out of the product.

Approach  3

Incorporate features/attributes that enhance buyer satisfaction in non-economic or intangible ways.

Approach  4

Compete on the basis of superior capabilities

S 3: When  Does  a  Differentiation Strategy  Work  Best?

•There are many ways to differentiate a product that have value and please customers.

•Buyer needs and uses are diverse.

•Few rivals are following a similar differentiation approach.

•Technological change and product innovation are fast-paced.

S 4: Pitfalls  of  Differentiation  Strategies

 •Appealing product features are easily copied by rivals

•Buyers see little value in unique attributes of product

•Overspending on efforts to differentiate the product offering, thus eroding profitability

•Over-differentiating such that product
features exceed buyers’ needs

•Charging a price premium
buyers perceive is too high

•Not striving to open up meaningful gaps in quality, service, or performance features vis-à-vis rivals’ products

S 5: Best-Cost  Provider  Strategies

•Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation.

–Make an upscale product at a lower cost.

–Give customers more value for the money.

Objectives

•Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations.

•Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to under price comparable brands.

S 6: When  Does  a  Best-Cost Provider  Strategy  Work  Best?
žWhere buyer diversity makes product differentiation the norm and ž
Where many buyers are also sensitive to price and value.

S 7: Risk  of  a  Best-Cost  Provider  Strategy

•A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies

–Low-cost leaders may be able to siphon
customers away with a lower price

–High-end differentiators may be able to
steal customers away with better product attributes

S 8: Focus / Niche  Strategies

•  —Involve concentrated attention on a narrow piece of the total market.

Objective—

   Serve niche buyers better than rivals.

Keys to Success—

• — Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs.

•  —Develop unique capabilities to serve needs of target buyer segment.

S 9: Approaches  to  Defining  a  Market  Niche

}Geographic uniqueness

}Specialized requirements in

using product/service

}Special product attributes
appealing only to niche buyers

S 10: What  Makes  a  Niche Attractive  for  Focusing?

•  —Big enough to be profitable and offers good growth potential.
•  —Not crucial to success of industry leaders.
• — Costly or difficult for multi-segment competitors to meet specialized needs of niche members.
•  —Focuser has resources and capabilities to effectively serve an attractive niche.
• — Few other rivals are specializing in same niche.
•  —Focuser can defend against challengers via superior ability to serve niche members.

S 11: Risks  of  a  Focus  Strategy

}Competitors find effective ways to match a focuser’s capabilities in serving niche.

}Niche buyers’ preferences shift towards product attributes desired by majority of buyers – niche becomes part of overall market.

}Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be splintered.

S 12: Deciding  Which  Generic Competitive  Strategy  to  Use

•  —Each positions a company differently in its market and competitive environment.
• — Each establishes a central theme for how a company will endeavor to outcompete rivals.
• — Each creates some boundaries for maneuvering as market circumstances unfold.
• — Each points to different ways of experimenting with the basics of the strategy.
• — Each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy.

The big risk – Selecting a “stuck in the middle” strategy!  

This rarely produces a sustainable competitive

advantage or a distinctive competitive position! 

S 13: Distinguishing Features of the Five Generic Competitive Strategies.