Organizations all wish to differentiate their products because it helps to hang onto the economic profits for as long as possible. This may seem self evident, but it must be made with care. Besides, some organizations decide to differentiate their product because they can’t directly imitate their competitors’ products. This report will analyze the ways the product may be differentiated to achieve a sustainable competitive advantage
When an organization launches or develops its product, it hopes to earn greater profits. In the globalization epoch, a product can’t compete successfully if it has no some characteristics that differ from competitor’s products. That’s why smart organizations often rely on differentiation. So, how can an organization differentiate its product?
In this report, there will be two parts. Firstly, theories and concepts of differentiation will be discussed. Then, the author will mention five effective ways the product can be differentiated, including: product, services, personnel, channel, and image
When an organization’s offerings can’t be copied by other competitors or it proves to be costly to imitate, this organization will achieve a sustainable competitive advantage (Barney, 1991). Therefore, the differentiation can be considered as the most effective way for an organization to achieve a sustainable competitive advantage. In the book “Contemporary Strategy Analysis” of Grant (2005), Mr. Goizueta, Coca-Cola’s former Chairman, believes that if the way to sell real estate is location, the way to sell products will be differentiation. So, what is differentiation?
In the Merriam-Webster Dictionary (2006) there are two differentiation’s definitions. The first one is “the act or process of differentiating”. And the second definition indicates differentiation as “development from the one to the many, the simple to the complex, or the homogeneous to the heterogeneous”
In the book “Differentiate or Die”, Trout (2000) claims: “where there’s a will, there’s a way to differentiate”. Also, Calori and Ardisson (1988) consider “differentiation” as a situation in which a company’s offerings has some particular and valuable characteristics for customers. Those characteristics must be accepted by consumers, protected from duplication by other rivals as well as be valuable for suppliers
A. Definition of Product Differentiation
Waterson (1989) claims that: “With product differentiation, anything can happen”. So, what’s product differentiation?
Shaw (1912) considers product differentiation as a strategy to satisfy consumer demands more precisely than competitors. This differentiation way can help organizations build-up the product’s needs and the higher potential of price level.
Chamberlin (1965) defines product differentiation as distinguishing the products of a company from other competitors on the basis of the necessary to consumers and their preferences. He also realizes that various consumer preferences can lead to a set of different demand curve
Scheuing (1974) holds that “product differentiation” is to add some differences to the product to help compete successfully with competitors in the same market. Kotler (1998) considers it as the presentation of different forms, features, qualities, designs, etc… of the product to gain higher profits.
Also, Samuelson (1976) acknowledges it as a smart ways to satisfy different consumer demands. However, he recognizes that most of product differentiations are man-made.
When a product is created, price is only one of the elements to attract customers. So, it’s difficult for organizations to increase their price higher than the marginal cost without losing market shares. On the contrary, “product differentiation” allows organizations enjoy their market powers. (Bertrand, 1987)
In summary, “product differentiation”, a strategy of creating and altering variations between an organization’s products and those offered by rivals, is the most popular way for organizations to gain a sustainable competitive advantage. If customers prefer these differences, they can lead consumers to pay a higher price for the product. Successful product differentiation would exist if company can think of something that no company has thought of before or improve something that already exists. Some products lend themselves little variations (i.e. chicken, lumber, steel). Others (i.e. furniture, cell phones, and cars) are customized and differentiated to meet consumer demands.
The key to product differentiation, according to Levitt (1986), is to offer consumers more than they think; they need or expect to get. This requires a good knowledge of consumers and their customers businesses.
B. Ways to Differentiate
An organization can differentiate its product through “Form” – product’s size, shape and physical structure. Examples include Aspirin, Nokia, etc…
It can also offer its products with different “Features” that supplement its basic functions. The most successful way to compete successfully is to be the first to introduce new features. (i.e Volvo, Arm & Hammer)
An organization can also differentiate its product by improving its quality “Performance Quality” is levels at which the organization’s product characteristics are operated. (i.e. Mars, BMW). “Conformance Quality”, describes how designs and operational characteristics of the product match its goal standard.
“Durability” is a measure of, under natural / stressful conditions, the product’s operating lifetime. Customers will pay a higher price for watches (i.e. Rolex) or batteries (i.e. Energizer) that have the long-lasting reputation.
Similar to Durability, customers are willing to pay a premium for products that are reliable. “Reliability” refers to the guarantee of useful operation within a given period. Maytag, a famous manufacturer of home appliances, is one of companies has a “reliability” reputation.
Easy to repair is also the effective way for organizations to differentiate. “Reparability” is a measure of how easy, within a given time, decayed or damaged products to be repaired to acceptable operating situation. A product with parts that are easily replaced may be preferred by customers. If customers can self-fix the failed product within the minimum money or time, the reparability will be successful
“Style” describes how the product is looked by customers. Its advantage is to create distinctiveness that is not easy to imitate. Rolls-Royce automobile’s fantastic look can lead customers pay a premium for it. Style also has an important effect in Montblanc pens, Harley-Davidson motorcycles, etc.
Apple and Garden Silk often differentiate their product through “Design”, which describes how a product looks and functions in terms of consumer’s requirements. An organization can achieve a sustainable competitive advantage if its product’s design can interest more attention from customers than competitors
In 2008, Apple launched its thinnest / lightest laptop, the “MacBook Air”, creating a large effect in the global technology and converting millions to its line of laptops. Until 2009, it continued to launch another innovation, the “MacBook Wheel”, a creative laptop without keyboard. Apple hopes that it can continue developing demand for its products, and make consumers realize they can’t survive without the sleek, shiny Apple laptops.
A. Definition of Service Differentiation
Products can be easily imitated by competitors; but service can’t. Because service is built basing on the culture / training and attitudes of employees, so it’s difficult to set up and maintain successfully, but will be more difficult to imitate (Albrecht and Zemke, 1985; Doyle, 1989). So, differential services can be the most sustainable advantage to build a successful organization (Doyle, 1989)
According to Kotler (2009), the way to satisfy the needs of a particular market segment, when the product is unable to differentiate, lies in adding valued service and improving the quality. Indeed, if many organizations offer the same product, the organization that provides good services will gain higher profits.
B. Ways to Differentiate
“Order Ease”, which refers how easy for customers to order products/services with organizations, is the first way to differentiate from competitors. For example, customers can get information and do transactions more efficiently when banks such as Techcombank, HD Bank offer home banking software
“Delivery” is another way to differentiate. It, including speed, accuracy and care, refers how well the product is delivered to customers. Customers usually choose an organization with on-time delivery service. Domino’s pizza, for example, is the famous company of delivery speed, good quality and its value proposition. Within 30 minutes of ordering, pizza will be delivered to customers with acceptable prices.
The next differentiation way is “Installation”, which refers to checking how satisfactory the product performs after it is installed. Differentiation in this method can be necessary with complicated products in the consumption chain
“Customer Training”, which refers to training customer’s employees in the correct and effective use of equipment, is another way to differentiate the service. General Electric gives extensive training to users of expensive X-ray equipment after selling and installing this equipment in hospitals
Companies like Vitamine Institute, Accenture can differentiate their services through “Customer Consulting”, which use an organization’s data, information systems and advice services to provide to customers
“Maintenance and Repair”, which helps customers, make products in good working order. Cite Maruti, HP as examples
Organizations can also use other ways to differentiate. They can offer warranties, maintenance contracts, rewards or product return, etc…
FedEx usually offers many logistic services like “FedEx First Overnight”, “FedEx 2Day”, etc…, with a various guaranteed delivery time, to clients ready to pay the corresponding price. In these cases, every client self-selects the delivery time option based on their preference for speed and willingness to pay. This helps them change their preferences, depending on the values of prices and delivery times for products or their situational needs
A. Definition of Personnel Differentiation
Personnel differentiation can put better, more qualified people in contact with consumers than competitors. If competitors do features benefit sell, a company can differentiate its company by using a human resource-based approach to selling. Offering better customer services/after-sale services or making fewer mistakes than competitors can generate repeat business. Doing business with good people is a segmenting dimension for customers.
Recruiting and training better employees than competitors can help an organization achieve a sustainable competitive advantage. Although employees are overlooked, an organization should consider them carefully. This human-resource based benefit isn’t easy to copy because the source of this benefit can’t be apparent to outsiders. (Kotler and Keller, 2009)
The author thinks that personnel differentiation is the most effective way to obtain a sustainable competitive advantage because other differentiation such as product, service, channel or image can be copied by competitors, but personnel can’t. That’s why an organization, which hopes to earn more profit and increase market shares, should focus on differentiating its people.
B. Ways to Differentiate
An organization can enjoy their success through training better people than competitors. Personnel, that are trained better, may have six characteristics:
* Competence – being competent; adequacy; performance of skill, knowledge, qualification, or capacity
* i.e. IBM
* Courtesy – a courteous, respectful, or considerate expression and act
* i.e. Singapore Airlines, McDonald
* Credibility – be reliable to customers
* Reliability – use services accurately and consistently
* i.e. Maytag, Caterpillar
* Responsiveness – respond promptly to any customer’s requests
* i.e. Fedex, Disneyland
* Communication – understands customers and expresses understandable.
* i.e. Barnes & Noble
Take Louis Vuitton as an example. The company’s management decides to pay highly for its staff in order to motivate them to create products with highest quality standards. All members of the company staff are given the complete training to satisfy customer’s needs. That’s why Louis Vuitton becomes the famous luxury brand worldwide.
Another example is the case of Singapore Airlines (SIA). For many years, the company enjoys a good reputation based on its flight attendants. It decides to focus its advertising campaign on “Singapore Girl” because, according to its in-flight service manager, SIA is an airline of Asia, which has a gentle and polite tradition. Moreover, when the Asia woman performs the role of the charming and friendly hostess, she will not think she demeans herself. Translating the above characteristics into its in-flight reality is what SIA want (Harvard Business School, 1989).
A. Definition of Channel Differentiation
Organizations can obtain a sustainable competitive advantage through channel differentiation, which makes the product/service more readily available via multiple locations, longer operation hours, or over the Internet. For some market segments, exclusive distribution is preferred because the upscale target customer demands uniqueness or distinctiveness in the products/services they purchase. Or they prefer full-service resellers to self-service resellers.
Nowadays, many organizations use the Internet as a communication channel because of its advantages. Firstly, it’s an effective channel to distribute and communicate with its location-free and time-free, so it helps improves organizations from local to global, 24/24 hours. Next, customers can place their orders with a wider variety of products, whenever and wherever they want, in contrast to offline organizations with the limited assortment of products and operation hours. Finally, an organization can take advantages of the Internet as a useful distribution channel to do online transaction
B. Ways to Differentiate
Organizations design their distribution, to achieve a sustainable competitive advantage, through channel’s coverage (i.e. Tide, Unilever, Caterpillar), expertise (i.e. Caterpillar, Dell) and performance (i.e. Fresh Direct)
It is difficult to buy Brioni suits because they are so exclusive. Customers can find them in online businesses, especially in the eBay. If customers want a new tailored suit of their own, the best choice is to find in the company’s local boutiques. Brioni’s products are located at tuxedo boutiques and upscale suit. It’s also sold in many big departmental stores and wholesale point
A. Definition of Image Differentiation
Everything an organization does can lead to its corporate image. In other words, all the organization’s actions will determine its image. Thus, according to Ind (1992), the image can create perceptions, in the consumers’ mind, of what an organization is. So, a strong image leads to a good reputation and helps customers be confident in the product” (Doyle and Stern, 2006)
Nowadays, most of organizations are becoming more and more competitive. Therefore, only the organizations, which are really differentiated, will exist. Moreover, positive images can help increase profits, support Research & Development (R&D) activities or hire high-skilled personnel, etc…(Smith and Taylor, 2004). That’s why organizations should establish their images that differ from other competitors.
B. Ways to Differentiate
An organization can differentiate its image through strong symbol (i.e. Apple), around famous persons (i.e. Brioni, Tiger), or choose a color identifier (i.e Coke)
Moreover, an organization should work its image into advertisings / media that convey stories, moods, or claims, which appear in its annual reports, brochures, and business cards
Atmospheres of the physical place occupied by the company can also a good way to differentiate the organization’s image from other competitors
The final way an organization differentiate its image is through a number of events it sponsor. Pepsi, Vinamilk is cases in this point
Pepsi is the well-known beverage companies. The company’s image always associates with sport activities. It use images of famous footballers such as Lionel Messi, Frank Lampart, Thierry Henry, etc….for its advertising campaigns. Moreover, Pepsi’s image can also be differentiated through a number of events it sponsors. This year, Pepsi continue to sponsor for the most exciting sport event, World Cup 2010 in South Africa. All of the above show that Pepsi is one of the most successful companies in differentiating its image.
Giorgio Armani is another example. It is the most famous fashion manufacturer in the world. Hollywood stars are usually found in Giorgio Armani boutiques. This makes the company’s image as the reputation of celebrities. However, recently, there are many counterfeit products entering in the Giorgio Armani’s market. It will harm for the company’s quality
When creating and introducing a new product, an organization can cope with the competition from other companies and usually entertains uncertainty about the product’s demand. So organizations need to distinguish themselves from competitors through differentiation ways to achieve a sustainable competitive advantage