Page 33 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Production and Operations Management

Notes Successful differentiation creates lines of defense against the five competitive forces. It provides
insulation against competitive rivalry because of brand loyalty of customers and hence lower
sensitivity to price.
The customer loyalty also provides a disincentive for new entrants who will have to overcome
the uniqueness of the product or service. Competitors are not likely to follow a similar approach
if buyers value the differentiated products and services. If they do, this will lead to a lose-lose
situation for them.

The higher returns of the strategy, provides a higher margin to deal with supplier power. Buyer
power is mitigated as there are no comparable alternatives. Finally, a company that has
differentiated itself to achieve customer loyalty should be better placed to compete with
substitutes than its competitors.

Example: Mercedes in automobiles, Bose in audio systems and Caterpillar in construction
equipment.

Competitive advantage through differentiation is sustainable if the activities taken to achieve
differentiation are rare and costly to imitate. The most appealing types of differentiation strategies
are those least subject to quick or inexpensive imitation. Differentiation is most likely to produce
an attractive, long-lasting competitive edge when it is based on technical superiority, quality,
giving customers more support services, and on the core competencies of the organization.
Differentiation requires the organization to have some of these skills and resources:
1. Strong marketing abilities
2. Product engineering

3. Creative flair
4. Corporate reputation for quality or technological leadership
5. Strong cooperation from channels
6. Strong coordination among functions

7. Amenities to attract highly skilled labour, scientists, or creative people.
Differentiation strategy works best when there are many ways to differentiate the product/
service and these differences are perceived by buyers to have value or when buyer needs and
uses the item are diverse. The strategy is more effective when not many rivals are following a
similar type of differentiation approach.

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Caution There are risks in differentiation strategy when the cost of differentiation becomes
too great or when buyers become more sophisticated and need for differentiation falls.
2.2.3 Focus and Niche Strategies

The generic strategy of focus rests on the choice of a narrow competitive scope within an
industry. The focuser selects a segment or group of segments in the industry, or buyer groups,
or a geographical market and tailors its strategy to serving them to the exclusion of others. The
attention of the organization is concentrated on a narrow section of the total market with an
objective of catering to service buyers in the target niche market. The idea is that they will do a
better job than the rivals, who service the entire market. Each functional policy of the organization
is built with this in mind.

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