Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Slide 20Slide 21Slide 22Slide 23Slide 24Product Product DifferentiationDifferentiationChapter 5Chapter 5Strategic Management & Competitive Advantage – Barney & Hesterly2Product DifferentiationProduct DifferentiationCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly22Mission ObjectivesExternalAnalysisInternalAnalysisStrategicChoiceStrategyImplementationCompetitiveAdvantageThe Strategic Management ProcessBusiness LevelStrategyCorporate LevelStrategyHow to Position aBusinessin the Market?Which Businessesto Enter?Strategic Management & Competitive Advantage – Barney & Hesterly3Product DifferentiationProduct DifferentiationCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly33Business Level StrategiesTwo Generic Business Level StrategiesCost Leadership:• generate economic value by having lower coststhan competitorsProduct Differentiation:• generate economic value by offering a productthat customers prefer over competitors’ productStrategic Management & Competitive Advantage – Barney & Hesterly4Product DifferentiationProduct DifferentiationCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly44Product DifferentiationA business level strategy intended to:• increase the perceived value of the focalfirm’s products and/or services relativeto the value of competitor’s products and/orservices• create a customer preference for the focal firm’sproducts and/or servicesStrategic Management & Competitive Advantage – Barney & Hesterly5Product DifferentiationProduct DifferentiationCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly55Bases of DifferentiationA base of differentiation must fill somecustomer need:• image• status• comfort• taste• beauty• style• furthering a cause• reliability in use• safety• nostalgia• cleanliness• service• quality• accuracy• hunger • belongingA differentiated product fills one or more needsbetter than the products of competitorsStrategic Management & Competitive Advantage – Barney & Hesterly6Product DifferentiationProduct DifferentiationCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly66Almost anything can be a base of differentiation• tangible thing (product features, location, etc.)• intangible concept (reputation, a cause, an ideal, etc.)• limited only by managerial creativityBases of Differentiation• the wide range of customer needs can be filledby a wide range of bases of differentiationStrategic Management & Competitive Advantage – Barney & Hesterly7Product DifferentiationProduct DifferentiationCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly77Bases of DifferentiationThree Categories1) Product Attributes2) Firm—Customer Relationships3) Firm Linkages• exploiting the actual product• exploiting relationships with customers• exploiting relationships within the firmand/or relationships with other firmsStrategic Management & Competitive Advantage – Barney & Hesterly8Product DifferentiationProduct DifferentiationCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly88Bases of DifferentiationProduct Attributes• Product Features – the shape of a golf club head• Product Complexity – multiple functions on a watch • Timing of Introduction – being the first to market• Location – locating next to a freeway exitStrategic Management & Competitive Advantage – Barney & Hesterly9Product DifferentiationProduct DifferentiationCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly99Bases of DifferentiationFirm-Customer Relationships• Customization – creating a unique diamond braceletfor a customer• Consumer Marketing – creating brand loyalty to a soapthrough image advertising • Reputation – sponsoring the local homeless shelterto engender positive community responseStrategic Management & Competitive Advantage – Barney & Hesterly10Product DifferentiationProduct DifferentiationCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights reserved. Strategic Management & Competitive Advantage - Barney & HesterlyStrategic Management & Competitive Advantage - Barney & Hesterly1010Bases of DifferentiationFirm Linkages• Linkages among Functions in the Firm – using acircuit board designed in one division in otherdivisions• Linkages with other Firms – a sporting goods storesponsors a benefit race by donating running shoesand receives free radio advertising in return• Product Mix – a furniture store begins to sellhome gym equipment, computers, and lawn mowersStrategic Management & Competitive Advantage – Barney & Hesterly11Product DifferentiationProduct DifferentiationCopyright © 2006 Pearson Prentice Hall. All rights reserved. Copyright © 2006 Pearson Prentice Hall. All rights