Summary of “Strategic Management and Competitive Advantage”, Chapter 5 by Jay B. Barney and William S. Hesterly

1. I’m
different!

2. Product Diff erentiation
One of two (or many) ways business gains competitive advantage.
Summary of “Strategic Management and Competitive Advantage”, Chapter 5
by Jay B. Barney and William S. Hesterly.
Presenters: Dwi Arti Anugrah, Endro Catur Nugroho, Marlisa Kurniati, Tri Kuncoro Wati
Faculty of Psychology, Universitas Indonesia, 2013
Information in this document is intended for academic purposes only.

3. cheaper
quicker
Competitive
trace-
Advantage
less
How?
used by More
Mariah • Cost LeadershipBenefits!
Carey
• Product Differentiation
Cheaper!
• ???
USD value value USD USD value value
23 23 23 USD
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cost cost cost
cost
yours compe- yours compe-
titors titors

4. Product
Differentiation
“A business strategy whereby firm
attempt to gain a competitive
advantage by increasing the
perceived value of their products
or services relative to the
perceived value of other firms’
products or services”
(Barney & Hesterly, 2012)

5. Product
Differentiation
“A business strategy whereby firm
attempt to gain a competitive
advantage by increasing the
perceived value of their products
or services relative to the
perceived value of other firms’
products or services”
(Barney & Hesterly, 2012)

6. Product Differentiation
is about
Customer Perception

7. Why Differentiate?
Focus on specific market
Price war competition
Declining industry
Others?

8. How to Differentiate Product?
Focus on:
Attributes of Relationship with Linkages within or
products: customers: between firms:
1. Features 5. Customization 8. Among functions within
2. Complexity 6. Marketing a firm
3. Timing 7. Reputation 9. With other firms
4. Location 10. Product mix
11. Distribution channels
12. Service and support

9. altering the features
1 Product Features (materials, functions, etc.)
of a product
JAVARA™ promotes Indonesia’s finest natural
gastronomic heritage: food biodiversity,
gastronomic-culture and craftsmanship. The
collaboration of the three allows JAVARA to create
artisanal, natural and organic food.
What makes the product different from other
organic foods:
1. No chemical additives (coloring, preservatives,
bleaching and flavoring)
2. Fair trade, ensures sustainable agriculture and
apply that benefits the farmers, small producers
and the consumers.
Other exp: Mercedes Benz and “crumple zone”
Q: how to ensure product features equal to customer benefits?

10. exposing product parts to
Product
2 Complexity create sense of complexity
or simplicity
Simply put, BreadTalk™ makes bread. It is aimed for
the urban community, reflected on its boutique
design, breadware, up to the look of the breads
themselves.
What makes the product different from other bread
boutiques’:
1. ‘See-thru’ kitchen to expose the complexity of
parts (and process) that made up a simple-
looking bread
Other exp: BIC and its “handful” parts
Q: is complexity (read: sophistication) equal to customer benefits?

11. physical location is
3 Product Location ‘strategic’ or preferable for
buying experience
7-Eleven™ is a 24 hours convenience store which
provide fresh food and beverages products, groceries
with dine in facilities.
What makes the product different from other
convenience stores:
1. Strategic location. “Dimana ada pengkolan, disitu
ada 7-Eleven”, it is where the street junction is.
2. Providing space for buyers to dine-in (read:
hangout), hence, buy more.
Other exp: Disney’s operation in Orlando, Florida
Q: can online replace physical location yet remain ‘strategic’?

12. perception of ‘more
Product Timing
4 to Introduction valuable’ due to perfect
timing (needs, trends, etc.)
Mobile banking application was was made possible
in Indonesia as mobile phone was becoming mass
needs and mobile data communication was cheap.
Different to its previous technology (SMS-based,
which is still being used by telco operators), it uses
mobile data application installed in account holders’
smartphone.
What makes the product different from other
banking methods:
1. It exploits the increasing (if not booming) mobile
and smartphone use in Indonesia as well as
availability of local apps developers.
2. It address traffic problem(esp. in Jakarta) which
was a significant barrier, especially for business
owners.
Other exp: Microsoft MS-DOS and introduction of PC
Q: does being the first promise more likeliness to succeed?

13. Products are customized for
Product
5 Customization particular customer
(applications)
Dell introduced online configurator to custom-build
the right desktop and laptop especially for personal
and small business users.
What makes the product different from other
desktops/laptops:
1. It allows buyers to custom-build their desktops
and laptops and preview the result before
deciding to buy.
Other exp: ORACLE and SAP
Q: can customization (more expensive) serve non-premium customers?

14. altering customers’
Product
6 Marketing perception through
positioning & repositioning
L-Men was successful in stirring the minds of
thousands (or millions) of Indonesian men (straight,
gay, whatever) through its campaign: “you are how
your body looks” and promising that “it works”.
What makes the product different from other
supplements:
1. It is marketed as a lifestyle product instead of
food supplement.
2. It links health (fitness) with style in a lifestly-
oriented market segment.
3. It bombarded the market with visuals that
attracted not just men to buy but also women
(or other men) to buy for their partners.
Other exp: Mountain Dew as the xtreme sport drink
Q: does repositioning actually give more benefit to customers?

15. complex (and mostly long-
Product
7 Reputation
established) relationship
that enable firm and its
customers to ‘take risks’
Cosmos introduced rice-cooker, a big hit appliances
in many many Indonesian homes, with an
assumption that if their customers were buying their
popular rice box, they would also buy the rice-
cooker. The assumption was not all-wrong; the rice-
cooker survived to stand among other stronger
brands.
What makes the product different from other rice-
cooker:
1. Brand reputation that pomised (and have
proven) long-lasting home appliances: “ingat
beras, ingat Cosmos”.
Other exp: MTV and the world’s first reality show
Q: is reputation only built over times? How startup build reps. quickly?

16. linking firm’s different
Linkage Between
8 Function
strengths and functions to
develop products (with
more benefit to customers)
In a pharmaceutical company where
units/departments are divided into areas of
specialties (genetics, biology, chemistry, etc) may
develop a ultidisciplinary team to explore and work
on new drug categories. Apart from being better
drugs, company’s ability to coordinate cross function
team is a competitive advantage.
Q: what are the costs of being unable linking strength & functions?

17. linking a firm’s products
Links with Other
9 Firms
with other firms’ products
to create more value to
each product.
When deciding to re-brand itself, KFC chose to
become “younger”. It chose to link with music, the
symbol of young(er) generation, without really
making music. Instead, it sells music CD in their meal
package. It has proven to increase their sales,
achieve the targeted image, and ... surprisingly
become popular CD outlets.
What makes the product different from other fast
food:
1. It worked with music producers to associate
both products (KFC’s fastfood and music CD) to
the young(er) generation.
2. It made CD sales easy(er), no need to go to
music stores.
Other exp: Barbie’s NASCAR series
Q: does co-branding equal to this strategy?

18. a mix of products that are
technologically linked or
10 Product Mix purchased simultaneously
by customers
Not the biggest, but Esia was known as provider of
cheap telecommunication. It could only survive –
and lead the market – by increasing traffic, especially
voice. Because technology was not Esia’s USP, it
mixed its product (mobile number and top-ups) with
cheap Chinese mobile devices and resulted in ‘free’
mobile phones for certain purchase of top-ups.
What makes the product different from other telco
products:
1. Customers felt that they received ‘free’ mobile
phones. In fact, Esia purchased cheap mobile
phones, reduce its profit margin on voice
communication and compensated by its traffic
boost.
Other exp: malls
Q: how to retain a product’s USP when sold/distributed as a mix?

19. establishing different
Product
11 Distribution
distribution methods for
different targets
(customers, locations, etc.)
Oriflame is today one of the fastest growing beauty
companies selling directly their products to
consumers. Rather than investing in a chain of shops,
which would have taken time and been very costly,
the company decided to move its retail operations
into the homes of consumers.
What makes the product different from other
cosmetics:
1. It uses “gifts from friend” approach to direct-sale
their product way before word-of-mouth and
social media was even thought about.
Other exp: CocalCola and its local bottlers
Q:?

20. providing certain level of
Service and
12 Support service and support
associated to products.
Olympus was not the biggest camera maker in the
world. But in Indonesia, it led the increasing ILC and
mirrorrless camera market. It was also the first (if not
the only) to offer training for new Olympus ILC,
mirrorless and DSLR camera users, setting the
service bar higher even at the very beginning of user
experience.
What makes the product different from other
camera:
1. It created educated customers by providing free
photography training which, for enthusiast
amateurs, was invaluable.
Other exp: GE and its independent service network
Q: how to adjust price to match desired post-sales service and support?

21. How to Differentiate Product?
Focus on... only one?
Attributes of Relationship with Linkages within or
products: customers: between firms:
1. Features 5. Customization 8. Among functions within
2. Complexity 6. Marketing a firm
3. Timing 7. Reputation 9. With other firms
4. Location 10. Product mix
11. Distribution channels
12. Service and support

22. The Value of Product Differentiation

23. Differentiation to Neutralize Threats
Five
Forces Substitutes
Product
Model Differentiation
Q: during planning, how to forecast differentiation’s potential to reduce
threats?

24. Differentiation to Exploit Opportunities
Healtimie offers
healthier instant
noodle
Refinement XEROX copy paper
and the copying
machines/printers
Consolidation market
First mover
Olympus PEN and
the ILC/Mirrorless
Q: how product differentiation benefit a firm in declining industry?

25. Sustained Competitive Advantage
Rarity -> creativity Imitability

26. Product Imitability
Low-
cost
Feature: Internet TV:
Sony -> LG (cheaper)
mix customization marketing
Maybe costly
DIRECT DUPLICATION
ILC/Mirrorless
SUBSTITUTES
Link w/ other firms complexity
timing reputation Service & support
Usually costly
Professional compact
1. Bigger sensors than compact
2. Bright fixed-lens
3. Manual controls
4. RAW shooting
5. Smaller size location distribution

27. Innovation Process: Case Study
3M is a global company that never
stops inventing and innovating.
Over the years, its innovations
have improved daily life for
hundreds of millions of people all
over the world. 3M has made
driving at night easier, made
buildings safer, and made
consumer electronics lighter, less
energy-intensive and less harmful
to the environment. They even
helped put a man on the moon.
Every day at 3M, one
idea always leads to the
next, igniting
momentum to make
progress possible
around the world.

28. Innovation Process: Case Study
How 3M put innovation at the heart of its
management and operation?
Rewards and Recognition
Stretch Goals Empowerment Communication
Vision Foresight

29. Innovation Process: Case Study
Celebrated
Experts
Measured Robust
Success Network
Customer Diverse
Connection Technology Innovation Centers
Bold
around the world
Talent including Indonesia

30. Organization
Structure: Structure:
1. Few layers 1. Cross divisional/functions
Product Differentiation
2. Simple reporting 2. Matrix
3. Small corp. staff 3. Skunk works
Cost Leadership
4. Focus on narrow range of functions
Management Control: Management Control:
1. Tight cost-control system 1. Broad decision making
2. Quantitatve cost goals 2. Managerial freedom
3. Close supervision of labor, raw 3. Policy of experimentation
materials, inventory etc
4. Cost leadership philosophy
Compensation: Compensation:
1. Reward for cost reduction 1. Reward for risk taking
2. Incentives for all employees involved 2. Reward for creativity
in cost reduction 3. Multidimensional performance
measurement

31. Can the firm implement Cost
Leadership and Product
Differentiation simultaneously?
Yes? No?

32. Cost Leadership & Product Differentiation
YES, if: NO, if:
• Market is substatially • Product is low-priced
large (sales volume) and cover large market
• Firm is proven to • Product is high-priced
succesfully manage and cover niche market
internal contradiction
(and conflict)

33. Question

34. Presenters: Dwi Arti Anugrah, Endro Catur Nugroho, Marlisa Kurniati, Tri Kuncoro Wati
Faculty of Psychology, Universitas Indonesia, 2013
Information in this document is intended for academic purposes only.