1 product differentiationchapter 5 product differentiation { “@context”: “”, “@type”: “imageobject”, “contenturl”: “/slide/12402361/74/images/1/product+differentiation.jpg”, “name”: “product differentiation”, “description”: “chapter 5. product differentiation. to enter”, “width”: “1024” } 3 business level strategiestwo generic business level strategies cost leadership: • generate economic value by having lower costs than competitors example: wal-mart product differentiation: • generate economic value by offering a product that customers prefer over competitors’ product example: harley-davidson { “@context”: “”, “@type”: “imageobject”, “contenturl”: “/slide/12402361/74/images/3/business+level+strategies.jpg”, “name”: “business level strategies”, “description”: “two generic business level strategies. • beauty. • service. • exploiting the actual product. • product features – the shape of a golf club head. • product mix – a furniture store begins to sell. • service and support – an oil change shop begins. industry. “, “width”: “1024” } 16 the value of product differentiationfocal firm with no differentiated product focal firm with differentiated product mcff pff atcind atcff pind dind dff mrff qind qff above normal profits { “@context”: “”, “@type”: “imageobject”, “contenturl”: “/slide/12402361/74/images/16/the+value+of+product+differentiation.jpg”, “name”: “the value of product differentiation”, “description”: “focal firm with no.

“, “width”: “1024” } 18 the value of product differentiationexploiting industry-type opportunities mature industry refining product or adding services example: ford’s emphasis on service declining industry exploiting niches: serving those with strong needs example: newt at the royal hawaiian { “@context”: “”, “@type”: “imageobject”, “contenturl”: “/slide/12402361/74/images/18/the+value+of+product+differentiation.jpg”, “name”: “the value of product differentiation”, “description”: “exploiting industry-type opportunities. • spinners. • and/or a premium price. • social complexity. • some substitutes may be obvious. • u-form with. • creativity. • firms can do both. • a product differentiation strategy is only as good. “, “width”: “1024” } evaluating a firm’s external environment 2-1 copyright © 2012 pearson education, inc. publishing as prentice hall.

two major forms of product differentiation – quality – variety differentiation by quality is vertical differentiation – everyone agrees what is better or worse differentiation by variety is horizontal differentiation product differentiation • two major forms of product differentiation – quality – variety • differentiation by quality is vertical differentiation – everyone agrees what is better or worse • differentiation by variety is horizontal differentiation – not everyone agrees what is better or worse trade-offs in laptop computer . which brand would be preferred by a consumer?

battery life a b c d computing power differentiation, cost and entry . hotelling’s model of horizontal differentiation • two businesses on a line segment • prices at l and r are and • consider consumer at a fraction x of distance from l to r • let c be cost of moving from l to r l r consumers of l consumers of r hotelling’s model of horizontal differentiation • consumer’s total cost at l is +cx • consumer’s total cost at r is +c(1-x) • consumer buys from business where she has lower cost • this determines the marginal consumer that is indifferent between buying from l and r • this is given by • the optimal prices of both firms are = =c implications of the model of differentiation • if l decreases price its sales increase is proportional to 1/c • business stealing is easy when c is small • thus c is the measure of differentiation between the products of l and r • profits are proportional to differentiation c • the length of interval between l and r is a measure of consumer heterogeneity where should firms locate? • if unit transportation cost is t and distance between l and r is d, then c=td e’s market has length d/2 e l r d/2 d/2 spatial preemption • transportation cost from l (or r) to e is dt/2 • thus e’s optimal price is the transportation cost, dt/2 • size of e’s market is d/2 • therefore e’s profit, were it to enter is • entry is profitable if implications of spatial preemption model • one can preempt with substantially fewer products than would exist in competitive conditions • preemptive distance d grows with fixed cost, but at a decreasing rate • thus, increasing entrants fixed cost is not a cost-effective strategy to preempt entry • it is better to fill up the product space • market can accommodate firms that are much closer than level at which preemption occurs

product differentiation • process of distinguishing a product from competitors. • adding new utilities. product differentiation found in: product differentiation factors ppt powerpoint presentation styles to enter? strategic management & competitive advantage – barney & hesterly. 3 . product differentiation. copyright ©, product differentiation examples, product differentiation examples, what is product differentiation, types of product differentiation, product differentiation strategy.

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