Page 134 - DCOM102_DMGT101_PRINCIPLES_AND_PRACTICES_OF_MANAGEMENT

Principles and Practices of Management

Notes 3. Trace the various reorganising efforts by Sculley, and explain his reasons for each
reorganisation.

Source: Deborah Wise and Catherine Harris, "Apple's New Crusade", Business Week, November 26, 1984.
Page 146 - 156.

7.5 Differentiation

By differentiation one understands the enterprise strategy to segment the market and then
purposefully adjust themselves at the needs of individual customer groups, in order to attain
advantages in such a way opposite the competitors.
Differentiation is one of the three classical competition strategies. It is aimed at the broad
market that involves the creation of a product or services that is perceived throughout its
industry as unique. The company or business unit may then charge a premium for its product.
Differentiation can take many forms, viz.
1. Prestige or brand image
2. Technology
3. Innovation

4. Features
5. Customer service
6. Distribution network

Differentiation is a viable strategy for earning above average returns in a specific business
because the resulting brand loyalty lowers customers' sensitivity to price. Increased costs can
usually be passed on to the buyers. Buyers loyalty can also serve as an entry barrier-new firms
must develop their own distinctive competence to differentiate their products in some way in
order to compete successfully.

Example: Successful use of a differentiation strategy are Hero Honda, Asian Paints,
HLL, Nike athletic shoes, Perstorp BioProducts, Apple Computer, and Mercedes-Benz
automobiles.
Research does suggest that a differentiation strategy is more likely to generate higher profits
than is a low cost strategy because differentiation creates a better entry barrier. A low-cost
strategy is more likely, however, to generate increases in market share. This may or may not be
true.

7.5.1 Types of Differentiation Strategy

The differentiation strategy has two variants that can be understood as follows:
1. Shareholder value model: According to the shareholder value model, the timing of the use
of specialized knowledge can create a differentiation advantage as long as the knowledge
remains unique. This model suggests that customers buy products or services from an
organisation to have access to its unique knowledge. The advantage is static, rather than
dynamic, because the purchase is a one-time event.

2. Unlimited resources model: The unlimited resources model utilizes a large base of resources
that allows an organisation to outlast competitors by practicing a differentiation strategy.
An organisation with greater resources can manage risk and sustain losses more easily

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