Chapter 9 – Differentiation advantage. This chapter presents the following content: The nature of differentiation, differentiation and segmentation, analyzing differentiation: the demand side, analyzing differentiation: the supply side, bringing it all together: value chain analysis. | Differentiation Differentiation Advantage Advantage OUTLIN E The nature of differentiation Differentiation and segmentation Analyzing differentiation the demand side Analyzing differentiation the supply side Bringing it all together value chain analysis The The Nature Nature of of Differentiation Differentiation DEFINITION Providing something unique that is valuable to the buyer beyond simply offering a low price. M. Porter THE KEY IS CREATING VALUE FOR THE CUSTOMER TANGIBLE DIFFERENTATION INTANGIBLE Observable product characteristics DIFFERENTATION size color materials etc. Unobservable and subjective performance characteristics relating to packaging image status exclusivity complementary services identity TOTAL CUSTOMER RESPONSIVENESS Differentiation not just about the product it embraces the whole relationship between the supplier and the customer. Differentiation Differentiation and and Segmentation Segmentation DIFFERENTIATION is concerned with how a firm distinguishes its offerings from those of its competitors i.e. How the firm competes SEGMENTATION is concerned with which customers needs localities a firm targets i.e. Where the firm competes DOES DIFFERENTIATION IMPLY SEGMENTATION –Not necessarily depends upon the differentiation strategy BROAD SCOPE DIFFERENTIATION Appealing to what is in common between different customers McDonalds Honda Gillette FOCUSED DIFFERENTIATION Appealing to what distinguishes different customer groups MTV Harley-Davidson Ralph Lauren Differentiation Differentiation vs. vs. Cost Cost Leadership Leadershipas asaa Basis Basisfor for Competitive CompetitiveAdvantage Advantage Highest return on equity among top 200 US companies 2002 Colgate Palmolive 367.8 Gillette 53.8 Caremark Rx 303.2 H.J. Heinz 48.5 American Standard 161.4 Pfizer 45.7 Yum Brands 98.1 Dell Computer 43.0 Kellogg 80.5 TJX 41.3 Anheuser-Busch 63.4 Oracle 36.4 Nextel Communications 58.3 PepsiCo 35.6 Sara Lee 58.0 3M 32.9 Altria Group 57.0 Eli Lilly 32.7 Wyeth 54.5 .