Product Differentiation and Services Differentiation

To be branded, products must be differentiated. At one extreme are products that allow little variation: chicken, aspirin, and steel. Yet even here some differentiation is possible: Perdue chickens, Bayer aspirin, and India’s Tata Steel have carved out distinct identities in their categories. Procter & Gamble makes Tide, Cheer, and Gain laundry detergents, each with a separate brand identity. At the other extreme are products capable of high differentiation, such as automobiles, commercial buildings, and furniture. Here the seller faces an abundance of differentiation possibilities.

As Chapter 10 described, well-differentiated products can create significant competitive advantages. Intuitive Surgical sells million-dollar robotic systems for operating rooms. Watching a high-definition video feed from a camera inside the patient, surgeons use a joystick, pedals, and a robotic arm with tiny scalpels and needles to per­form minimally invasive cardiac and urological procedures. One analyst said of Intuitive Surgical in 2010, “In our view, they’ve got a decade’s worth of technological lead.”6

Means for differentiation include form, features, performance quality, conformance quality, durability, reli­ability, repairability, and style.7 Design has become an increasingly important differentiator, and we discuss it separately later in the chapter.

1. PRODUCT DIFFERENTIATION

FORM Many products can be differentiated in form—the size, shape, or physical structure of a product. Consider the many possible forms of aspirin. Although essentially a commodity, it can be differentiated by dosage, size, shape, color, coating, or action time.

FEATURES Most products can be offered with varying features that supplement their basic function. A company can identify and select appropriate new features by surveying recent buyers and then calculating customer value versus company cost for each potential feature. Marketers should consider how many people want each feature, how long it would take to introduce it, and whether competitors could easily copy it.8

To avoid “feature fatigue,” the company must prioritize features and tell consumers how to use and benefit from them.9 Marketers must also think in terms of feature bundles or packages. Auto companies often manufacture cars at several “trim levels.” This lowers manufacturing and inventory costs. Each company must decide whether to offer feature customization at a higher cost or a few standard packages at a lower cost.

PERFORMANCE QUALITY Most products occupy one of four performance levels: low, average, high, or superior. Performance quality is the level at which the product’s primary characteristics operate. Quality is growing increasingly important for differentiation as companies adopt a value model and provide higher quality for less money. Firms should design a performance level appropriate to the target market and competition, however, not necessarily the highest level possible. They must also manage performance quality through time. Continuously improving the product can produce high returns and market share; failing to do so can have negative consequences.

MERCEDES-BENZ From 2003 to 2006, Mercedes-Benz endured one of the most painful stretches in its 127-year history. The company saw its reputation for stellar quality take a beating in J. D. Power and other surveys, and BMW surpassed it in global sales. To recoup, a new management team reorganized around functional elements—motors, chassis, and electronic systems—instead of model lines. Engineers now begin testing electronic systems a year earlier and put each new model through 10,000 diagnostics that run 24 hours a day for three weeks. Mercedes-Benz also tripled its number of prototypes for new designs, allowing engineers to drive them 3 million miles before production. With these and other changes, the number of flaws in the company’s cars dropped 72 percent from their 2002 peak, and warranty costs decreased 25 per­cent. As an interesting side effect, Mercedes-Benz dealers have had to contend with a sizable drop in their repair and service businesses! The challenge now is to match the impressive levels of quality and reliability set by Japanese luxury foes.10

CONFORMANCE QUALITY Buyers expect a high conformance quality, the degree to which all produced units are identical and meet promised specifications. Suppose a Porsche 911 is designed to accelerate to 60 miles per hour within 10 seconds. If every Porsche 911 coming off the assembly line does this, the model is said to have high conformance quality. A product with low conformance quality will disappoint some buyers. Firms thoroughly test finished products to ensure conformance. Although men account for almost three-quarters of the world’s beer sales, SABMiller found that women were actually more sensitive to levels of flavor in beer and thus were better product testers.11

DURABILITY Durability, a measure of the product’s expected operating life under natural or stressful conditions, is a valued attribute for vehicles, kitchen appliances, and other durable goods. The extra price for durability must not be excessive, however, and the product must not be subject to rapid technological obsolescence, as personal computers, televisions, and cell phones have sometimes been.

RELIABILITY Buyers normally will pay a premium for more reliable products. Reliability is a measure of the probability that a product will not malfunction or fail within a specified time period. Maytag has an outstanding reputation for creating reliable home appliances. Its long-running “Lonely Repairman” ad campaign was designed to highlight that attribute.

REPAIRABILITY Repairability measures the ease of fixing a product when it malfunctions or fails. Ideal repairability would exist if users could fix the product themselves with little cost in money or time. Some products include a diagnostic feature that allows service people to correct a problem over the telephone or advise the user how to correct it. Many computer hardware and software companies offer technical support over the phone, by fax or e-mail, or via real-time chat online.

STYLE Style describes the product’s look and feel to the buyer and creates distinctiveness that is hard to copy. Car buyers pay a premium for Jaguars because of their extraordinary looks. Aesthetics play a key role for such brands as Apple computers, Godiva chocolate, and Harley-Davidson motorcycles.12 Strong style does not always mean high performance, however. A car may look sensational but spend a lot of time in the repair shop.

CUSTOMIZATION As Chapter 9 described, customized products and marketing allow firms to be highly relevant and differentiating by finding out exactly what a person wants—and doesn’t want—and delivering on that. Online retailers such as Zazzle and CafePress allow users to upload images and create their own clothing and posters or buy merchandise created by other users. NikeiD, which allows customers to personalize and design their own shoes and clothing either online or in store at NikeiD Studios, now generates hundreds of millions of dollars in revenue.13

The demand for customization is certainly there. One Forrester study found that more than one-third of U.S. online consumers were interested in customizing product features or in purchasing build-to-order products that use their specifications. And companies have responded: M&M’s allows you to print specialized messages on your candies; Pottery Barn Kids allows you to personalize a children’s book; and for $2,000 or so, Burberry allows you to select the fabric, color, style, and five other features for your own personalized trench coat.14

2. SERVICES DIFFERENTIATION

When the physical product cannot easily be differentiated, the key to competitive success may lie in adding val­ued services and improving their quality. Rolls-Royce PLC has ensured its aircraft engines are in high demand by continuously monitoring their health for 1,300 airplane engines around the world through live satellite feeds. Under its TotalCare and CorporateCare programs, airlines pay Rolls a fee for every hour an engine is in flight, and Rolls assumes the risks and costs of downtime and repairs.15

The main service differentiators are ordering ease, delivery, installation, customer training, customer consult­ing, maintenance and repair, and returns.

ORDERING EASE Ordering ease describes how easy it is for the customer to place an order with the company. Baxter Healthcare supplies hospitals with computer terminals through which they send orders directly to the firm. Many financial service institutions offer secure online sites to help customers get information and complete transactions more efficiently.

DELIVERY Delivery refers to how well the product or service is brought to the customer, including speed, accuracy, and care throughout the process. Today’s customers have grown to expect speed: pizza delivered in half an hour, eyeglasses made in 60 minutes, cars lubricated in 15 minutes. Many firms have computerized quick response systems (QRS) that link the information systems of their suppliers, manufacturing plants, distribution centers, and retailing outlets to improve delivery.

Cemex, a giant cement company based in Mexico, has transformed its business by promising to deliver concrete faster than pizza, equipping every truck with a global positioning system (GPS) so dispatchers know its real-time location. Its 24/7 LOAD service program guarantees delivery within a 20-minute window, providing important flexibility in an industry where delays are costly but common.16

INSTALLATION Installation refers to the work done to make a product operational in its planned location. Ease of installation is a true selling point for technology novices and for buyers of complex products like heavy equipment.

CUSTOMER TRAINING Customer training helps the customer’s employees use the vendor’s equipment properly and efficiently. General Electric not only sells and installs expensive X-ray equipment in hospitals, it also gives users extensive training. McDonald’s requires its new franchisees to attend Hamburger University in Oak Brook, Illinois, for two weeks to learn how to manage the franchise properly.

CUSTOMER CONSULTING Customer consulting includes data, information systems, and advice services the seller offers to buyers. Technology firms such as IBM, Oracle, and others have learned that such consulting is an increasingly essential—and profitable—part of their business.

MAINTENANCE AND REPAIR Maintenance and repair programs help customers keep purchased products in good working order. These services are critical in business-to-business settings. Goodyear’s TVTrack program helps its fleet customers monitor and manage tires more effectively.17 Many firms offer online technical support, or “e-support,” for customers, who can search an online database for fixes or seek online help from a technician. Appliance makers such as LG, Kenmore, and Miele have introduced products that can transmit self-diagnostic data over the phone to a customer service number that electronically describes the nature of any technical problems.18

Makers of luxury products especially recognize the importance of a smooth repair process. Although Movado watches are high-end, its repair process had been anything but, requiring time-consuming manual labor and customer inconvenience. Recognizing the need to offer more digital services in general, Movado created a Web site where customers can buy products directly from the company as well as execute many of the initial steps in the repair process online, such as registering any problems and identifying possible repair options before contacting customer service directly. The database created by users of the site has also allowed the company to recruit potential focus group participants and identify repair trends that may suggest recurring production problems.19

RETURNS A nuisance to customers, manufacturers, retailers, and distributors alike, product returns are also an unavoidable reality of doing business, especially in online purchases. Free shipping, growing more popular, makes it easier for customers to try out an item, but it also increases the likelihood of returns.

Returns can add up. One estimate is that 10 percent to 15 percent of overall holiday sales come back as returns or exchanges, and the total annual cost may be $100 billion.20 To the consumer, returns can be inconvenient, embarrassing, or difficult to complete. Returns have a downside for merchants too, when the returned merchandise is not in re-sellable condition, lacks proper proof of purchase, or is returned to the wrong store. It may even be used or stolen. Yet if the merchant is reluctant to accept returns, customers can become annoyed.21

Of course, product returns do have an upside. Physically returning a product can get the consumer into the store, maybe for the first time. One research study found that a lenient return policy left customers more willing to make other purchases and refer the company to others.22

We can think of product returns in two ways:23

  • Controllable returns result from problems or errors made by the seller or customer and can mostly be eliminated with improved handling or storage, better packaging, and improved transportation and forward logistics by the seller or its supply chain partners.
  • Uncontrollable returns result from the need for customers to actually see, try, or experience products in person to determine suitability and can’t be eliminated by the company in the short run.

One basic strategy is to eliminate the root causes of controllable returns while developing processes for handling uncontrollable returns. The goal is to have fewer products returned and put a higher percentage back into the dis­tribution pipeline to be sold again. San Diego-based Road Runner Sports, which sells running shoes, clothing, and equipment through multiple stores, catalogs, and a Web site, trains its salespeople to be as knowledgeable as pos­sible in order to recommend the right products. As a result, its return rate on running shoes has been 12 percent, noticeably below the industry average of 15 percent to 20 percent. 24

Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.

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