Differentiation involves achieving competitive advantage through pinpointing product or service attributes that customers perceive as valuable and positioning the firm to meet those demands better than the competition.
Sources Of Differentiation
Virtually any value activity is a potential source of uniqueness. For example, the procurement of raw materials and other inputs can affect of the end product and hence differentiation. Differentiation possibilities can grow out of the firm's value chain. Figure 9-5 illustrates how any activity in the value chain can potentially contribute to differentiation. Other successful differentiators create uniqueness through other primary and support activities Therefore, value chains developed for purpose of strategic cost analysis, may not isolate all activities that are important for differentiation.
A firm's uniqueness in a value activity is determined by a series of basic drivers. Uniqueness drivers are the underlying reasons why an activity is unique.
The principal uniqueness drivers are the following:
- Policy Choices
- Firms make policy choices about what activities to perform them. Some typical policy choices that lead to uniqueness include:
- product features and performance offered
- services provided (e.g., credit, delivery, or repair)
- intensity of an activity adopted (e.g., rate of advertising spending)
- content of activity (e.g., the information provided in order processing)
- technology employed in performing an activity (e.g., precision of machine tools, computerization of order processing)
- quality of inputs procured for an activity
- procedures governing the actions of personnel in an activity (e.g., service procedures, nature of sales calls, frequency of inspection or sampling)
- skill and experience level of personnel employed in an activity, and training provided
- skill and experience level of personnel employed in an activity and training provided
- information employed to control an activity (e.g, number of temperature, pressure, and variables used to control a chemical reaction).
- Uniqueness often stems from linkages within the value chain or with suppliers and channels that a firm exploits. Some typical include:
- Linkages within the value chain. Meeting buyer needs often involves coordinating linked activities.
- Supplier linkages. Uniqueness in meeting buyer needs may also be the result of coordination with suppliers.
- Channel linkages. Some examples of how linkages with channels can lead to unique are as follows: training channels in selling and other business practices; joint selling efforts with channels; subsidizing for channel investments in personnel, facilities, and performance of additional activities.
- Being the first to adopt a product image, for example, may preempt others from doing so and make the firm unique.
- For example, a retail bank may have the most convenient branch and automatic teller machine locations.
- The uniqueness of a value activity may stem from sharing it with sister business units.
- Learning and spillovers
- The uniqueness of an activity can be the result of learning about how to perform it better. The spillover of learning to competitors erodes its contribution to differentiation.
- Integration into new value activities can make a firm unique because the firm is better able to control the performance of the activities. It may also provides more activities to be sources of differentiation.
- Large scale can allow an activity to be performed in a unique way that is not possible at smaller volume.
- Institutional Factors
- Institutional factors sometimes play a role in allowing a firm to be unique.