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Business Level Strategy: Product Diversification. Learning Objectives:

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business level strategy product diversification

Business Level Strategy:Product Diversification

Learning Objectives:

Understand the bases of product differentiation and which might lead to competitive advantage; organizing to support product differentiation; pitfalls of adopting this business-level strategy; whether cost leadership and product differentiation can be simultaneously implemented; strategy implications of industry life-cycle.

the concept of generic strategies
The Concept of Generic Strategies

…strategies available to any firm to achieve competitive advantage…

product differentiation
Product features

Intra-firm linkages

Timing

Location

Product mix

Inter-firm linkages

Reputation

Product customization

Product complexity

Consumer marketing

Distribution channels

Service and support

Product Differentiation

Ways a company can successfully differentiate?

Examples of successful differentiation?

product differentiation and vrio framework
A product differentiation strategy is valuable to the extent it neutralizes threats and exploits opportunities.

How does a product differentiation strategy neutralize the following treats?

Threat of Entry

Threat of Rivalry

Threat of Substitutes

Threat of Buyers

Threat of Suppliers

Product Differentiation and VRIO Framework
product differentiation and vrio framework1
A product differentiation strategy is rare to the extent that firms are successful in creatively differentiating their products.Product Differentiation and VRIO Framework
product differentiation and vrio framework2
Product Differentiation and VRIO Framework

Which ones are valuable? Rare? Costly to duplicate?

  • Reputation
  • Distribution channels
  • Intra-firm linkages
  • Timing
  • Location
  • Service and support
  • Inter-firm linkages
  • Product customization
  • Product mix
  • Consumer marketing
  • Product complexity
  • Product features
organizing to implement product differentiation
Organizing to Implement Product Differentiation
  • More complex organizational structure(more layers, larger support staff, broader range of business)
  • Management control systems(broader decision-making, policy of experimentation)
  • Compensation policies differ(reward for risk-taking, creativity, teamwork)
pitfalls of product differentiation strategies
Pitfalls of Product Differentiation Strategies
  • Uniqueness that is not valuable
  • Differentiation may be too costly
  • Differentiation may be easily imitated
  • Dilution of brand
  • Perceptions of differentiation may vary or change
implementing both cost leadership and product differentiation strategies
Implementing Both Cost Leadership andProduct Differentiation Strategies

Can firms succeed implementing both strategies ?

implementing both cost leadership and product differentiation strategies1
The Pros…..

Product differentiation leads to increased sales, which lead to economies of scale, learning and other cost reductions

Empirical research supports dual strategies

Porter has backed off the “stuck in the middle” argument

The Cons…..

Requires different organizational structures

Management control systems differ

Differences in compensation policy design

Implementing Both Cost Leadership andProduct Differentiation Strategies
strategy implications of industry life cycle
Strategy Implications of Industry Life-Cycle

Determinants of success may differ depending on the stage of industry life-cycle

Introduction

Newly formed – innovations,

changes in demand, needs

Rapid increases in capacity and

unit sales, dominant technology

emerges

Growth

Maturity

Slowing growth rate, increased

competition, experienced

customer base.

Decline

Consistent decline in unit sales,

overcapacity

strategies and stage of industry life cycle emerging
Strategies and Stage of Industry Life-Cycle: Emerging

What does it take to succeed in the

Introduction / Emerging stage?

  • Technological leadership
    • Experience curve
    • Dominant technology
  • Financial resources
  • Preempt strategically valuable assets
  • Create customer switching costs / loyalty

Industry Examples?

strategies and stage of industry life cycle growth stage
Strategies and Stage of Industry Life-Cycle :Growth Stage

What does it take to succeed in the growth stage?

  • Marketing and promotion aimed at brand recognition
  • Expanding the product line
  • Financial strength to accommodate growth
  • Strong marketing channels

Industry Examples?

strategies and stage of industry life cycle mature
Strategies and Stage of Industry Life-Cycle :Mature

What does it take to succeed in the mature stage?

  • Product refinement – extensions, packaging
  • Emphasis on process innovation
    • Lower costs
    • Higher quality
  • Differentiation / emphasis on service
  • Horizontal integration
  • International expansion

Industry Examples?

strategies and stage of industry life cycle decline
Strategies and Stage of Industry Life-Cycle :Decline

What does it take to succeed in the declining stage?

  • Market leadership
  • Focus on growth segments – niche strategy
  • Emphasize production and distribution efficiency
  • Gradually harvest the business
    • Prune the product line
    • Preferred customer selection
    • Defer equipment maintenance and repair
  • Divestment

Industry Examples?