Differentiation 156 enjoyed a great deal of success in the mainframe computer market by providing superior service and charging customers a premium for their mainframes

 Differentiation 156

enjoyed a great deal of success in the mainframe computer market by providing superior service and charging customers a premium for their mainframes. A business owner who relied on a mainframe to run her company could not afford to have her mainframe out of operation for long. Meanwhile, few businesses had the skills to fix their own mainframes. IBM’s message to customers was that they would pay more for IBM’s products but that this was a good investment because when a mainframe needed repairs, IBM would provide faster and better service than its competitors could. The customer would thus be open for business again very quickly after a mainframe failure.

This positioning failed when IBM used it in the personal computer market. Rivals such as Dell were able to offer service that was just as good as IBM’s while also charging lower prices for personal computers than IBM charged. From a customer’s perspective, a person would be foolish to pay more for an IBM personal computer since IBM did not offer anything unique. IBM steadily lost market share as a result. By 2005, IBM’s struggles led it to sell its personal computer business to Lenovo. The firm is still successful, however, within the mainframe market where its offerings remain differentiated.

Firms following a differentiation strategy must “watch” out for counterfeit goods such as the faux Rolexes shown here.

Wikimedia Commons – public domain.

Key Takeaway

• Differentiation can be an effective business-level strategy to the extent that a firm offers unique features that convince customers to pay a premium for their goods and services.

Exercises

1. What are two industries in which a differentiation strategy would be difficult to implement?

2. What is an example of a differentiated business near your college or university?

157 Mastering Strategic Management

3. Name three ways businesses that provide entertainment that might better differentiate their services. How might they do this?

1Profit statistics drawn from Standard & Poor’s stock reports on Coca-Cola and Walmart.

References

Kapner, S. 2007, November 1. Nautica brand losing ground. CNNMoney. Retrieved from http://money.cnn.com/ 2007/10/31/news/companies/Kapner_Nautica.fortune/index.htm.

Ketchen, D. J., & Short, J. C. 2010. The franchise player: An interview with Don Larose. Journal of Applied Management and Entrepreneurship, 15(4), 94–101.

Porter, M. E. 1980. Competitive strategy: Techniques for analyzing industries and competitors. New York, NY: Free Press.

5.4 Differentiation 158

5.5 Focused Cost Leadership and Focused Differentiation

Learning Objectives

1. Describe the nature of focused cost leadership and focused differentiation.

2. Know the advantages and disadvantages of focus strategies.

 

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