MARKETING MANAGEMENT

Product Differentiation

RAGHAV JHA

Product Differentiation

It is a process of distinguishing a product or service offering from others, to make it more attractive to a particular target market vis-à-vis competitors products as well as a firm’s own product offering .

Product Differentiation

A business differentiation strategy intended to:

• increase the perceived value of the focalfirm’s products and/or services relativeto the value of competitor’s products and/orservices

• create a customer preference for the focal firm’sproducts and/or services

Bases of DifferentiationThree Categories

1) Product Attributes

2) Firm—Customer Relationships

3) Firm Linkages

Bases of Differentiation

Product Attributes

Preferences are created by actual differences in tangible product and services offered by focal firm vis-à-vis competitors offering

e.g. Quality featureproduct complexityTiming of introduction

Bases of Differentiation

Relationship with customerPreferences are created as the focal firm

develops and exploits relationship with customer based on what the target customers want

• Customization• Consumer Marketing• Reputation

Firm Linkages

Preferences are created by combining the competencies of different functions within or across organization to produce tangible or intangible differences between focal firm offering and competitors offering

• Linkages with other Firms• Product Mix• Distribution Channels• Service and Support

Bases of DifferentiationA base of differentiation must fill somecustomer need:

• price

Quality • features

• taste

• performance

• style

• durability• reliability• servicing

• customization

• • form

• belonging

A differentiated product fills one or more needsbetter than the products of competitors

QUALITY

STYLE

ADVANTAGE CREATES VALUE NON-PRICE COMPETITION BRAND LOYALTY NO PERCEIVED SUBSTITUTE ABNORMAL PROFIT VARIETY

DISADVANTAGE EXPENSIVE HINDERS MARKET

ENTRY

Competitive Advantage

The Value of Product Differentiation

Qind

Pff

Dff

MRff

ATCind

MCff

Pind Dind

ATCff

Qff

Focal Firm with No Differentiated Product

Focal Firm withDifferentiated Product

Above NormalProfits

A product differentiation strategy must meet theVRIO criteria…

it should Valuable

it should Rare

it should be costly to Imitate?

Is the firm Organized to exploit it?

…if it is to create competitive advantage.

Summary

• product differentiation creates customer preferences

• preferences allow firms to make above normal profits

• almost anything can be a base of differentiation

• bases of product differentiation that meet theVRIO criteria may generate competitive advantage

• a product differentiation strategy is only as goodas its implementation

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