New version page

MIT 1 46 - Strategic Management

Upgrade to remove ads
Upgrade to remove ads
Unformatted text preview:

Strategic Management John D. Macomber Lecture Notes: in Germany (9-501-070) Differentiation KONE: The Monospace Launch2 Differentiation Strategy (Competitive Advantage Ch. 4) • A firm differentiates itself if it can be unique at something that is valuable to buyers. • • • If the customers don't a) buy more of it or b) pay a premium for it, it's not successful differentiation. MIT / MUST Strategic Management John Macomber Real life caveat #1: Is it truly unique? Real life caveat #2: Is it truly valuable?3 Buyer Value and Differentiation • The starting point for understanding whatis valuable to the buyer is the buyer'svalue chain. • A firm creates value for a buyer thatjustifies a premium price (or preference atan equal price) through two mechanisms: • that's all. MIT / MUST Strategic Management John Macomber 1. By lowering buyer cost 2. By raising buyer performance4 The Value Chain and Buyer Value A firm lowers buyer cost or raises buyer performancethrough the impact of its value chain on the buyer'svalue chain. Lowering Buyer Cost • Lower delivery, installation, or financing cost • Lower the required rate of usage of the product • Lower the direct cost of using the product • Lower the indirect cost of using the product • Lower the buyer cost in other activities unconnectedwith the physical product • Lower the risk of product failure and thus the buyer'sexpected cost of failure. MIT / MUST Strategic Management John Macomber5 Buyer Perception of Value BUYERS WILL NOT PAY FOR VALUE THAT THEY DO NOT PERCEIVE, – no matter how real it may be. • Thus, the price premium a firmcommands will reflect both the value actually delivered to the buyer, AND • the extent to which the buyerperceives this value. MIT / MUST Strategic Management John Macomber6 Signaling Criteria (of Value) • reputation or image • cumulative advertising • outward appearance of the product • packaging and labels • appearance and size of facilities • time in business • installed base • customer list • market share • price (where price connotes quality) MIT / MUST Strategic Management John Macomber7 Sustainability • A firm differentiates itself if it can be unique at something that is valuableto buyers. • Differentiation will not lead to a premium price in the long run unlessits sources remain valuable to the buyer and cannot be imitated bycompetitors. MIT / MUST Strategic Management John Macomber8 Pitfalls in Differentiation • Uniqueness that is not valuable • Too big a price premium • Ignoring the need to signal value • Focus on the product instead of the whole value chain • Failure to recognize buyer segments • Not knowing the cost of differentiation MIT / MUST Strategic Management John MacomberStrategic Management John D.


View Full Document
Download Strategic Management
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Strategic Management and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Strategic Management 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?