Product Differentiation

O
    


Product differentiation is a business level strategy in which firms attempt to create and exploit differences between their products and those offered by competitors. These differences may lead to competitive advantage if customers perceive the difference and have a preference for the difference.


     
 The notion of a base of differentiation is important because it allows a firm to focus its efforts on creating and exploiting a particular difference between its products and competitors· products. Managers need to understand their own bases of differentiation and the bases of differentiation of competitors so that they can make informed strategic choices.

  

 


  Oustomers preferences are created by actual differences in the tangible product or service offered by the focal firm vis-à-vis competitors· offerings like Product features Product complexity Time of product introduction Location

 ! " " preferences are created as the firm develops and exploits relationships with customers based on what the focal firm·s target customers want

Product customization Oonsumer marketing Product reputation

Linkages within or between firms Preferences are created as the focal firm combines the competencies of different functions within or across organizations to produce tangible and/or intangible differences between the focal firm·s offerings and those of competitors

Linkages among functions within the focal firm Linkages with other firms Product mix Distribution channels Service and support


#

    


$ %  "     &

  ' ould-be entrants face the costs of overcoming customers· preferences for the firm·s products and/or services.

 ' "(") (%" "    " % "  "*+('% '!" % "" % "*  +

Threat of Substitutes: Oustomers are less inclined to even try the substitute product and the firm is therefore insulated from the threat of the substitute

Threat of Suppliers: The power of suppliers may be mitigated in two ways. First, the firm will likely be able to pass supplier price increases along to customers who have a preference for the firm·s differentiated product. Second, a firm that enjoys the strong preference of customers will usually have more bargaining power with suppliers compared to competitors that do not have differentiated products and services.

Threat of Buyers: The power of buyers is reduced because the firm enjoys a quasimonopoly. By definition, if a firm has a highly differentiated product, then the firm is the only firm in that market that can offer that particular product. Oustomers with a preference for the firm·s products and services must buy from the firm, thus reducing the power of buyers.


,-  O SIVA PRASAD MEKALA