Thou Shalt Differentiate - Iloka Benneth Chiemelie

QUESTION

Outline and critically evaluate the ways an organisation may differentiate their product to achieve a sustainable competitive advantage. Illustrate your answers with examples

THEORETICAL BACKGROUND

The effect of globalization is not hidden in the global market as there have been increased intensification and aggressiveness in relation to competition due to increased customer demand and shorter product life cycle (Shields, 1997). This lead to Porter (1996), pointing out linkage of strategy and organizational operations as the key to developing sustainable competitive advantage.

One of the ways organizations can respond to this issue is by developing products with distinctive features that are different from their competitors and have capability of standing out in the market. There is no question as to whether  this is optional, as several researchers have identified that appropriate matching of differentiation strategy and the environment where the product is sold have high potentials for enhancing sales performance (Baines and Langfield-Smith, 2003; Chenhall and Langfield-Smith, 2003; Singh et al., 2010).

Differentiation is seen as one of the core marketing theory and practices principles, which leads to a near universal acclamation as "Thou Shalt Differentiate" (e.g. Fulmer and Goodwin, 1988; Levitt, 1980; MacMillan and McGrath, 1997), with suggestions that marketers should be judged on how well they can differentiate their products. Differentiation of products basically involves creation of products that offer unique attributes from that of the competitors, which customers value to be better than that of the competitors and are willing to pay more for the value created by these products.

While they are numerous strategies a firm can use to differentiate its products in their markets, the success of the differentiation approach chosen depends on the products being offered and the market where this strategy is deployed. In that case, outlined below are some of the common differentiation strategies adopted by firms and each strategy will be discussed further in details to illustrate how firms can adopt them as they differentiation strategy.

• Differentiation by Product Features and Benefits
• Differentiation by price
• Differentiation by brand image
• Differentiation by Sales and distribution Channel
• Differentiation by customization 

DIFFERENTIATION BY PRODUCT FEATURES AND BENEFITS

Product features are basically the elements that make up a product such as parts of a car, while the benefits are what customer gain by using the products such as faster transportation by using the car. In the 4Ps of marketing, product element are considered one of the most crucial determinant of success of any product are customer want to be assured they will gain a value equal to the mount paid for the product.

This is arguably true as marketing researchers in the past have focused on the relationship between consumers and product features when predicting their choice of brand (O'Connor and Sullivan, 1995). These benefits are basically describe in terms of functional benefits (Sheth et al., 1991; de Chernatony, 1993), Price benefit (Zeithaml, 1988; Dodds et al., 1991), social benefit (Sheth et al., 1991; Ambler, 1997; Bhat and Reddy, 1998; Long and Schiffman, 2000), and emotional benefit (Sheth et al., 1991; de Chernatony, 1993; Ambler, 1997; Bhat and Reddy, 1998; Long and Schiffman, 2000) which create value for the product and persuades the customers to purchase.

Kaufman (1998), outlined principal customer values as: esteem value or "want", exchange value or "worth", and utility value or "need". He went on to say that customers' decision to purchase any goods or services is a product of one or combination of all of the value elements, where the sum of these elements equals a purchase decision. Customers use sorts of tangible and/or intangible benefits when deciding on the products and brands to choose from after making their purchase decisions (Monroe, 1990; Gale, 1994).

Based on the above discussion, it can be seen that product benefits play a huge impact on customers' purchase decision and while purchases stands as the final stage of products manufactured, the experiences gained from these products in terms of either tangible and intangible benefits are crucial in determining repeat purchase. Thus, it can be seen that if companies are able to offer high product values through extra benefits that their competitors can't match, they will be able to create sustainable competitive advantage.

For instance, many students choose to study with the university Bolton UK, due to the high intangible benefits (emotional feeling of studying with a world class University) and tangible benefits (quality education with high potential for employability) associated with the University in terms of other Universities in the world. Thus further illustrates the argument that firms can create sustainable competitive advantage through product features and benefits.

DIFFERENTIATION BY PRICE

When consumers are aware of price differences between products of same benefits and attributes, it can play important role as per determining their purchase decisions (Binkley and Bejnarowicz, 2003; Dolan, 1995; Mesak and Clelland, 1979; Monroe, 1973, 1992; Shapiro, 1968; Simon, 1989; Turley and Cabaniss, 1995; Vanhuele and Dre`ze, 2002). This is also in line with a key assumption in economic theory that states that, consumers tend to know the prices of the products they buy with a reasonable degree of precision.

Other theories such as behavioral and psychological theories of consumer behavior and information processing like the adaptation level theory (Helson, 1964), the assimilation-contrast theory (Sherif and Hovland, 1965), the Weber-Fechner law (Monroe, 1971), and the prospect theory (Kahneman and Tversky, 1979) are all defined at least on an implicit bases that consumers are aware of the prices of goods they buy; as price are evaluated, codified, and stored in their memory during purchasing as a bases for determining product value and repeat purchase.

From the above discussion, it can be seen that price if one of the primary ways of differentiating a product as consumers take prices of products into high consideration during purchase. Studies also found that consumers who perceive prices more accurately place a higher degree of importance on them (Brown, 1971; Hirn, 1986; Kujala and Johnson, 1993; McGoldrick and Marks, 1987), and this is because is one places high attention on price and makes a degree of effort to compare prices of different products before finalizing purchase decisions, then it must be because price is "important" to that consumers.

The changing economic situation have increased the level of importance of price during purchase decision amongst customers, as the current economic atmosphere calls for more saving than spending. In this case, price becomes a very important and easy way to differentiate a product, because once perceived as being of high quality and low price then customer have a great deal of becoming emotionally attached and repeat purchasers.  However, it must be noted that price differentiation can lead to price wars as companies compete to gain market share, and while this might be good to the consumers, it will not be good to the companies in both long- and short- term run. On the other hand, price of a product is also psychological attached with the quality thus customers have tendency to see high quality product with low price as being of low quality making price differentiation unpredictable.

DIFFERENTIATION BY BRAND IMAGE

The advancements in technology have opened the global market widely, with numerous local based industries now internationalizing and this effect have been argued as reducing emphasis on meaningful differentiation, thus, making branding more important. If brands are not conceived as being uniquely different, then the chances of consumer to search for a brand amongst products of the same feature and benefits is relatively low (Jenni et al., 2007). Therefore, to ensure that consumers continue buying a particular brand, the brand needs to stand out from the crowd for easy identification without much confusions in the

The basic purpose of branding is to highlight the source of a product which distinguishes it from other brands and competitors. This can further be highlighted in the name of brand which characterizes as being protected by law, unique in product offerings and preferred customer choice in the market (Jenni et al., 2007). Brand name and also helps in highlight a product's distinctive qualities which create a certain form of brand image that helps the customers in noticing, recognizing and recalling the brand during purchasing, advertising as they provide additional stimuli for processing.

In this case, branding becomes an essential element of differentiation as quality and distinctive features of a brand help to create, refresh or reinforce consumer memory structures for building a consumer based brand equity (Aaker, 1996; Keller, 2003), or facilitating actual purchase decisions by making the brand easier to locate.

They are numerous brands that can be used to illustrate the essence of product differentiation through creation of high brand image and such brands include Apple, Coca-Cola and Nintendo. Quality brand image are essential as it can create high customer loyalty through emotional attachment where customer fell that the brand is no longer a necessity but a lifestyle and part of their life.

For instance, illustrating with Apple, the brand have differentiate it product by attaching certain level of consumers' emotional connection to their products and this led to numerous customer have to line up whenever they have new product on the offer. This kind of image is creating by persuading customer to think and act differently (innovation). Apple's products have the same benefits with other computer and mobile products but yet customers are willing to pay more for their products due to high brand image attached with it. This illustrates that brand image associated with a product can help in differentiating the product in any market.

DIFFERENTIATION BY SALES AND DISTRIBUTION CHANNEL

A key element of a successful business model is the selection of sales and distribution approach. The overall process of selling and delivering finished goods to customers encompasses both companies' connection to its customer s and a significant portion of the company's profit. Firms traditionally select from a limited option of sales and distribution channel (e.g. direct sales, dealers, brokers etc.) and most firms from the same industry made similar choices thus, making differentiation virtually impossible. Nowadays, the choices have increase rapidly, creating potential instability in competitive positions for current market leaders and area of opportunity for other.

Many companies have built sustainable competitive advantage with their choice of sales and distribution channel and their ability to blend this choice into a well lucid and executed business model. They are also numerous literatures on how firms can gain competitive advantage through their distribution channels s (see, for example, Jeuland and Shugan 1983, Mathewson and Winter 1984). These literatures focus on the impact of distribution channel on the success of a product and they all tend to agree that the right medium of distribution is essential for maintaining competitive advantage.

This is true in mainstream business and common sense application also points to agreement that a firm who is has more distribution network will have high distribution of its products within the market and thus will accumulate huge competitive advantage which will in return yield high sales in comparison to their competitors with fewer distribution networks.

Whenever the issues of the success of a brand in relation to distribution is pointed out, they are numerous companies that can be used as references as most of the successful brands in FMCG industry and other monopolistic industry such as automotive gain competitive advantage through their distribution channel. Coca-Cola for instance maintains a great deal of competitive advantage through their numerous distribution and sales channel in across the world.

Through this means, the company is also to promote their products in the form of "words of mouth" from their distributors to the consumers; therefore, building a stronger brand image and higher brand loyalty. It can be seen that the huge impact of distribution and sales channel on differentiating a product towards gaining sustainable competitive advantage is significant in any form of business.

DIFFERENTIATION BY CUSTOMIZATION

According to Oksana and Henry (2011), mass customization is the use of a flexible manufacturing system to produce goods and services that are tailored to individual customers' need without compromising cost efficiency. This concept was originally coined by Davis in 1987. As a business strategy, mass customization rose to the peak during the early 2000s due to advancement in technological aided the transfer of customer-provided specifications to manufacturing (Piller, 2002).

Theoretical literatures on adoption of customization also points out that it is an essential setting towards differentiating products (e.g., Dewan, et al., 2003, Syam and Kumar 2006, Alexandrov 2008, Mendelson and Parlakturk 2008) as customization enables customers to acquire their idea products as a representation of their desired product attribute. Through this means, customers can fell emotional connected with the brand and it has huge potentials for increased repeat purchase as well as "words of mouth" advertisement.

A good example of successful differentiation through mass customization is Dell Computers. The company giant offers customers the chances of designing their computers based on their desired specifications through their website and have the computers delivered to the customers. Through this means, Dell is able to differentiate itself from other computer manufacturer and thus gain sustainable competitive advantage over other computer manufactures.

CONCLUSION

From the above discussions, it was illustrated that differentiation is key to success of products as it helps in making the product stand out in crowded market and thus enhances customer loyalty through quality brand image. They are numerous ways a company can differentiate its products but five of these ways were discussed above which include: Differentiation by Product Features and Benefits, Differentiation by price, Differentiation by brand image, Differentiation by Sales and distribution Channel and Differentiation by customization.

While these differentiation strategies have been proven to be essential towards gaining sustainable competitive advantage, it must also be noted that the success of each strategy depends on other elements such as the products offered, the market where these products are offered and the company offering such products.

Thus, it must be deduced that competitive advantage is not solely achieved through differentiation as while these strategies have their pros, they also have numerous cons which can backfire on the company undertaking such strategies. For instance, product features and benefits can result in high production cost, price differentiation can led to price war amongst companies, differentiation by brand image can affect other products under the same brand in case of poor brand image associated with a particular product under the brand, differentiation by sales and distribution channel can led to exposition of brand identity and secrecy within the distribution network and the last but not the least, adopting mass customization as a differentiation process can result in high production cost, increase in cost of goods due to customization and certain level of inefficiency as companies need different customization scopes for each custom product.

Thus, it can be concluded that differentiation is essential for creating and maintaining sustainable competitive advantage especially in a modern market were influences of advancement in technology and globalization now offers customer numerous choices and higher bargaining power. But on the other hand, it is essential that companies calculate, evaluate and monitor each strategy chosen to ensure their objectives are meet with each strategy.

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