DIFFERENTIATION

- Firms that compete on uniqueness and target a broad market are following a
differentiation strategy.
- A firm that follows a differentiation strategy attempts to convince customers to pay a
premium price for its goods and services by providing unique and desirable features.
- Using a differentiation strategy means that a firm is competing based on uniqueness
rather than price and is seeking to attract a broad market (Porter, 1980).
- Successful use of a differentiation strategy depends on not only offering unique features
but also communicating the value of these features to potential customers. The product
difference may be based on product design, method of distribution, or any aspect of the
product (other than price) that is significant to the consumer.
- Successful differentiation can mean greater product flexibility, greater compatibility,
lower costs, improved service, less maintenance, greater convenience, or more features.

ADVANTAGES AND DISADVANTAGES OF DIFFERENTIATION STRATEGY

Advantages

 A key advantage is that effective differentiation creates an ability to

obtain premium prices from customers.
 To the extent that differentiation remains in place over time, buyer
loyalty may be created.
 A differentiation strategy also creates benefits relative to potential new
entrants.

Disadvantages

 The big risk when using a differentiation strategy is that customers will
not be willing to pay extra to obtain the unique features that a firm is
trying to build its strategy around the unique product may not be valued
highly enough by customers to justify the higher price
 Competitors that sell less expensive options with the same quality for a
price sensitive buyer. Buyers will not pay the higher differentiation price
unless their perceived value exceeds the price they are paying.
 Product imitations- Differentiation does not guarantee competitive
advantage, especially if standard products sufficiently meet customer
needs or if rapid imitation by competitors is possible.
 A final risk for firms pursuing a differentiation strategy is changing
consumer tastes.

- Common organizational requirements for a successful differentiation strategy include

strong coordination among the R&D and marketing functions and substantial amenities
to attract scientists and creative people.
- The most effective differentiation bases are those that are hard or expensive for rivals to
duplicate. To the extent that differentiating attributes are tough for rivals to copy, a
differentiation strategy will be especially effective, but the sources of uniqueness must
be time-consuming, cost prohibitive, and simply too burdensome for rivals to match.
JOINT VENTURE

- Joint ventures involve two or more organizations that contribute to the creation of a
new entity. The partners in a joint venture share decision-making authority, control of
the operation, and any profits that the joint venture earns.
- Franklin Roosevelt once quipped, “Competition has been shown to be useful up to a
certain point and no further, but cooperation, which is the thing we must strive for
today, begins where competition leaves off.”
- The ownership arrangement can vary as to how much each partner owns and how much
each partner has control. Joint ventures can work well, even among competitors, when
each partner brings something of value to the venture that the other partner could use.
- Other types of cooperative arrangements include research and development
partnerships, cross-distribution agreements, cross-licensing agreements, cross-
manufacturing agreements, and joint-bidding consortia.
- Joint ventures and cooperative arrangements are being used increasingly because they
allow companies to improve communications and networking, to globalize operations,
and to minimize risk.
- It is often used to pursue an opportunity that is too complex, uneconomical, or risky for
a single firm to pursue alone. Such business creations also are used when achieving and
sustaining competitive advantage when an industry requires a broader range of
competencies and know-how than any one firm can marshal.
- Firms can benefit from cooperating with one another. This is because cooperation
enables firms to share rather than duplicate resources and to learn from one another’s
strengths. Sometimes two firms create a joint venture to deal with a shared opportunity.
In other cases, a joint venture is designed to counter a shared threat.
- Strategic partnering takes many forms, including outsourcing, information sharing, joint
marketing, and joint research and development.
- In our global survey of 253 companies that used joint ventures to spur growth or
optimize their product mix, more than 80% of the participants told us that the deals met
or exceeded expectations. (FORBES, 2017)

Six guidelines for when a joint venture may be an especially effective means for pursuing
strategies are:

o When a privately owned organization is forming a joint venture with a publicly

owned organization; there are some advantages to being privately held, such as
closed ownership; there are some advantages of being publicly held, such as
access to stock issuances as a source of capital. Sometimes, the unique
advantages of being privately and publicly held can be synergistically combined
in a joint venture.
o When a domestic organization is forming a joint venture with a foreign
company; a joint venture can provide a domestic company with the opportunity
for obtaining local management in a foreign country, thereby reducing risks such
as expropriation and harassment by host country officials.
o When the distinct competencies of two or more firms complement each other
especially well.
o When some project is potentially very profitable but requires overwhelming
resources and risks.
o When two or more smaller firms have trouble competing with a large firm.
o When there exists a need to quickly introduce a new technology.