Competitive Advantage - Differentiation

Question 1

What is a differentiation strategy?

Answer 1

An action plan the firm develops to produce goods or
services that customers perceive as being unique in
ways that are important to them

Question 2

What are the drivers of differentiation?

Answer 2

Tangible: Size, Color, materials, performance, packaging, complimentary services

Intangible: image, exclusivity, identity

Question 3

What is a focus strategy?

Answer 3

An action plan the firm develops to
produce goods or services that serve the needs of a
specific market segment.

“think niche market”

Question 4

When do Focus Strategies Work Best?

Answer 4

Difficult for multisegment rivals to serve specialized
needs of target audience
E.g., GoPro vs. Canon and Sony
Rivals not focusing on same segment
E.g., Klean Kanteen, Injinji
Not enough resources to pursue larger share of
market
E.g., Union Bindings
The more segments, the more areas to focus on
E.g., travel industry

Question 5

What are the Pitfalls to differentiation?

Answer 5

Source of differentiation may cease to create value for target customers
Abercrombie & Fitch
Tiger Woods
Livestrong brand
Customers may decide that cost of differentiation is
too much
Plasma TVs
3D movies
Differentiated products may be counterfeited or
imitated such that customers ask, “Why pay more for
real thing?”
American Eagle taking market share from
Abercrombie & Fitch

Question 6

What are the pitfalls of mixing cost leadership and differentiation?

Answer 6

Porter: Cost leadership and differentiation not
compatible
- Result of seeking advantages on all fronts: No
advantages at all
- Risk of undermining quality in pursuit of cost
leadership
- Confusing image projected, even if quality
maintained