Mst.
Shuly Aktar
Associate Professor
Department of Marketing
Begum Rokeya University, Rangpur
Chapter 8
Differentiation
1
Differentiation
A firm differentiates itself from its competitors
when it provides something unique that is valuable
to buyers beyond simply offering a low price
It is not only happen in product or marketing
practices but it can arise anywhere in a firm’s value
chain
Differentiation allows a firm to
command:-
► A premium price i.e. additional payment of price through
by lowering buyers cost or enhance buyer performance so
that
the buyers will be willing to pay price.
► To sell more of its product at a given price.
► To gain better buyers loyalties. 2
Steps in differentiation:
• Determine who the real buyer is.
• Identify the buyer’s value chain and the firm’s
impact on it.
• Determine ranked buyer purchasing criteria.
• Assess the existing and potential sources of
uniqueness in a firm’s value chain.
• Identify the cost of existing and potential sources
of differentiation.
• Choose the configuration of value activities.
• Test the chosen differentiation strategy for
sustainability.
• Reduce cost in activities that do not affect the
chosen forms of differentiation. 3
Sources of Differentiation in the value chain
Differentiation grows out of the firm’s value chain and any
value activity is a potential source of uniqueness.
For supportive activities:-
• Firm infrastructure:
• Human resource management:
• Technological development:
• Procurement:
For Primary activities:-
• Inbound logistics:
• Operations:
• Outbound logistics:
• Marketing & sales:
• Service: 4
Drivers of Uniqueness
A firm’s uniqueness in value activities is determined by a
series of basic drivers i.e. uniqueness drivers are the
underlying reasons why an activity is exceptional.
Without the uniqueness of drivers it is difficult for a firm to
create differentiation.
Sources of Uniqueness:-
►Policy choice:
- Product features and performance offered
- Service provided (e.g. credit, delivery, or repair)
- Intensity of an activity (e.g. rate of advertising spending)
- Content of an activity (e.g. order processing)
- Technology employed (e.g. effective machine tools etc.)
- Quality of inputs
- Skills and experience level of personnel
- Control an activity (e.g. temperature, pressure)
5
►Linkage:
– Linkage within the value chain
– Suppliers linkage
– Channels linkage.
How linkages within channels can lead to uniqueness are as follows:
- Training channels in selling and other business practices
- Joint selling efforts with channels
- Investment in personnel, facilities, and performance of
additional activities.
► Timing: Uniqueness may result from when a firm begun performing an
activity i.e. First mover or Late mover.
► Location: Uniqueness may originate from location
►Interrelationships: The uniqueness of a value activity may stem
from sharing it with sister business unit
►Learning: The uniqueness of an activity can be the result of learning
about how to perform it better.
6
►Institutional factors: Govt, union etc
Buyer value and differentiation
A successful differentiator finds ways of creating value for
buyers that give way a price premium. Value is created for the
buyer when a firm creates competitive advantage for its
buyer by lowering its buyer’s cost or raises its buyer’s
performance.
Mechanisms of creating buyers value:
● by lowering buyer cost
● by raising buyer performance
Ways of lowering buyer’s cost :
• lower delivery, installation, or financing cost
● lower the required rate of handling of the product
● lower the direct cost of using the product, such as labor,
fuel, maintenance
● lower the indirect cost
● lower the buyer cost which is unconnected with the physical
product
● lower the risk of product failure and thus the buyer’s
expected cost of failure. 7
Raising buyer performance:
It depends on understanding what desirable performance
i.e. differentiation from the buyer’s viewpoint is. Also it is
based on helping them meet their non-economic goals such
as status, image, or prestige. To understand buyers need is
important.
e.g. a truck sold to a buyer who is a consumer goods
company that uses it to carry goods to retail stores. If the
retail store desires frequent delivers, the consumer goods
company will be very interested in a truck with carrying
capacity to make frequent deliveries at a reasonable cost.
►Buyer purchase criteria:
Buyer purchase criteria means the specific attributes of a firm that
create actual or perceived value for the buyers.
It can be divided into two types:
● Use criteria: specific measures of what creates buyer value. It is
created through lowering buyer cost or raising buyer performance
● Signaling criteria: measures of how buyers perceive the
presence of value. i.e. it influences the buyer’s perception of the firm’s
8
ability to meet its use criteria.
► Signaling criteria included:
• -Reputation or image
• -Cumulative advertising
• -Weight or outward appearance of the product
• -Packaging and labels
• -Appearance and size of facilities
• -Time in business
• -Customer list
• -Market share
• -Price
• -Parent company identity (size, financial identity, etc.)
Routes to Differentiation
● It may become more unique in performing its existing value
activities
● It may reconfigure its value chain in some way that
enhances its uniqueness. 9
The Sustainability of Differentiation
The sustainability of differentiation depends on two things:
● Its continued perceived value to buyers and
● The lack of imitation by competitors
How it can be more sustainable?
• sources of uniqueness involve barriers
• cost advantage in differentiating
• differentiation are multiple sources
• creates switching costs at the same time it
differentiates
10
Thanks
11
