The Strategic Gestalt STRATEGY S E F FIRM

The Strategic Gestalt STRATEGY S E F FIRM ENVIRONMENT or MARKET © R. Kernochan, 2005 1

Strategic Gestalt: Differentiation STRATEGY E F FIRM ENVIRONMENT or MARKET © R. Kernochan, 2005 2

Differentiation Strategy • It is: selling products or firm attributes that have unique value for the customer – Above average returns come from • charging a premium price for desired products and/or product features • selling more at the same price • dampening cyclical downturns • For the firm, it means: Working to obtain a customer-valued difference relative to the competition © R. Kernochan, 2005 3

Generic Strategies & the Concept of Proximity (Parity) • Cost Leader firms compete with Differentiators & vice-versa. • There is a limit to how much extra consumers will pay for valued features, or how many features they will give up to pay less. • Hence concept of promimity/parity or closeness. © R. Kernochan, 2005 4

Proximity (Parity) Generic Strategy Type of Proximity Cost Leadership Feature Differentiation Cost © R. Kernochan, 2005 5

Differentiation Strategy: Important Issue • Differentiation is poorly specified, “all other. ” – Very general description – Cost Leadership could be form of differentiation – Doesn’t distinguish among different types of “differentiation” • Remedy: ALWAYS specify what kind of differentiation strategy: – Company is seeking CA based on what? – Examples: • Coca-Cola based on image, association with energy, fun • Ford: Quality is Job 1 (but is it? ) • Marlboro: lifestyle, personal qualities © R. Kernochan, 2005 6

Core Question: If all firms focus on differentiation to some degree, • how do I tell which ones are following a differentiation strategy? • how do I tell which ones have a differentiation competitive advantage? © R. Kernochan, 2005 7

Some Clues: what will I see? (1) • Above average returns (no CA without AAR) • Most firms seek, perceive differences – Not all differences are valued by the customer • Dominant cultural values concern product differences & customer value for those diff. – “customer-driven” firm – “customer comes first” at all levels of the org. © R. Kernochan, 2005 8

Some Clues: what will I see? (2) • Firm Actions – Investments in the value chain that increase buyer value: new products, product features, perceived differences. – Small changes in cost can have large buyer effects – Examples – Mergers to obtain new competencies, products – Quality that increases perceived differences – Other Actions • R & D investments: product emphasis • Sometimes: speed to market © R. Kernochan, 2005 9

Uniqueness Drivers • Policy changes: what activities to perform and how to perform them • Linkages: – Within value chain – Backwards or forwards in chain – Important if the way one activity is performed affects the performance of another © R. Kernochan, 2005 10

Some Examples of Policy Changes • Product features • Product performance • Intensity of activity (e. g. , advertising) • Content of activity • Technology employed • • • Input quality Personnel procedures Personnel skill Personnel experience Information employed to control activity © R. Kernochan, 2005 11