Unit 3: Discussion 1 Week 3 MBA695

I usually spend about 20 minutes talking through this slide.

Alright, so let’s put this in a logic tree or you think of it as a problem tree. So what is the source of the differentiation advantages? So we’ve got product features, quality reliability, more convenient to find, purchase, use, and brand image. Alright, so it does a better job on existing features, more jobs, or does a unique job. So I’m going to go up here. Michael, up in, that’s why I was looking, at your hand today. So tell me, what does it mean, give me example of each of these three. Does a better job on existing features, does more jobs than other products, or does a unique job that nothing else does. What would you say would be an example of a product does a better job on existing features?

Student: On existing features, well that was like the example of the vacuum.

Professor: Ok, the vacuum, sucking better. Ok, so we know we expect that vacuums to suck. So what about does more jobs?

Student: The iPhone. So with all the apps.

Professor: The iPhone. Ok good. So the iPhone succeeded early on because it could do more things than a traditional phone, all though the majority of iPhone users actually admitted they thought it was a worse phone than the other phones on the market place. That’s just the phone, but they liked it because it could do so many other things. Ok. And what about a unique job?

Student: It does something that other products or services just don’t do. How about like a touch screen computer.

Professor: If you were the very first that had the touch screen computer, that would be unique. What else?

Student: I just saw this commercial for…in a few years a car is going to come out that can fly too. It’s like an airplane. It’s a nasty looking car, but it can fly. I would say that’s a unique job.

Professor: You would say that’s pretty unique.

Student: Yeah, the car that can fly.

Student: I think an example is like Disneyland. There’s not really a substitute for the park.

Professor: Yeah, it is unique. You’re experience at Disneyland is a completely unique experience. You can’t go anywhere else and have lunch with the Disney princesses. Cause I’m sure most of you really want to. But I took my daughter, eight year old daughter, and we had a good time having lunch with the Disney princesses. And I learned two things from that experience. Number one, that they can charge you 25 bucks for a hamburger if you want to have a lunch with Disney princesses. And the second thing, is that at the time my sons, I think were 13 and 17, and they liked having lunch with the Disney princesses as much as my 8 year old. So I think they were ok with that too. Alright, do you have another?

Student: I was just going to say, that I have heard about this new app which is going to make it so people can create stocks directly with no broker fees.

Professor: So it is going to be a new app, free?

Student: Yeah.

Professor: It will be completely unique?

Student: Exactly.

Professor: Yeah, and if you think about a lot of…this is the way pharmaceutical companies make their living. They create a unique drug, a unique product, they get a patent on it, and then they are the only product of their kind until the patent runs out. So there are products like that that will do something that’s completely unique, they often are protected by patents. And the examples we talked about the, or at least that are described in the book or text are the iPod, originally did a much better job of portability than the Discman. So most of you are probably too young to remember the joys of jogging with the Discman, but it was not the best portable music experience because it wasn’t really small and portable. So on that feature of being portable, iPods are stronger. And then of course we talked about Dyson. And you think about every company needs to provide service, but Nordstrom somehow differentiates on service. And there are these legendary stories that they tell, that actually, if you go look it up, they actually, they are true about, like the guy in Anchorage, Alaska that took his tires back to Nordstrom, and Nordstrom doesn’t sell tires, but the manager, to keep the man happy, he took the tires back. That’s some pretty good service, when you’re taking back a product that you don’t even sell. Then this gets known. And then, apparently, if you dig deeper in the story, I guess there was a tire store that was there before, and he knew where it had moved, so I think they just took the tires back for the guy and got reimbursed. But that’s the kind the kind of service you were talking about earlier. So another time where a customer left a bag of clothes and things that had been purchased at Nordstrom was near the store, an employee found it, it had an airline ticket in it. It was in the New York area, and so they actually jumped on their system to try and find the customers phone number, call the number, couldn’t get it, but the employee then jumped in a vehicle and went to, cause they saw what time the flight was going to leave from the ticket, took the bags, paged the person at the airport and delivered the bags to them. And that’s what you call customer service. That’s the way you get written up in Business Week and other places. And that’s the kind of thing they do training about, is we want you to do things that are unexpected. And as we get into today’s class a little bit more, I want you to think about a product that you think of as awesome. That the first time you experienced this product or service, you just thought, “Oh this is really awesome”. And I want to get at what makes…what is it that makes a product or service really awesome in the minds of the customer because that is what’s going to help get you a high net promoter score.

Student: It seems that in the case that a lot of times people that are doing a better job, it seems like that is also fairly unique. Like I feel like Nordstrom offering that customer service is also unique in that sense. And the same with Disneyland, you could argue that there are other people who offer that theme park fun experience, like Universal Studios or Six Flags, but Disneyland, not only do they have the unique one, but they are also better at doing it, them, than other people.

Professor: Yeah, so this is where…the only way you can differentiate the two, is that there is something protecting someone doing something that’s unique that it’s trademark, it’s patented, it’s something that means nobody else can do it the same way because of some sort of trademark or patent. So everybody could do what, it’s not like you couldn’t do what Nordstrom do. It’s not like they have a trademark or a patent or something that prevents it. They just do it because of great training and culture. The others could potentially do it, but nobody can actually put Mickey Mouse in their parks.

Student: So that’s the unique part.

Professor. That is the unique part. Is there is something about it that’s protected by intellectual property or others that makes it, sort of, impossible for someone else to actually imitate it. And that’s the only way you can distinguish the two because otherwise it is unique, it’s just not that it necessarily has to be, others could do it, but they just don’t. Yes?

Student: When we are talking about service, customer service. Does that part fall more into better quality or like a ____, or does that fall into _____(securing a process??).

Professor: Yeah, so when you think about, well if we move to quality and reliability. And actually why don’t we, let’s go through here and then we can talk about distinction because what you are asking and you are trying to get this sort of careful sense of this is a categorization, a taxonomy, and the question is, are these really mutually exclusive and exhaustive and how does that work. Because there really aren’t a lot of taxonomies out there around differentiation. And we have tried to create one that we think works, but a lot of times there are these areas that sort of overlap and it seems like they are pretty similar, but we will tell you how they are different. So what does more jobs is the iPhone, film digital cameras, the reason that they beat 35 millimeter wasn’t because of better picture quality. At the beginning picture quality was worse, but it was the ease of being able to take a picture and see it. You didn’t have to have the old Polaroid anymore to see your picture and know if it was good, and then it was just the ease with which you could send digital files, so it did more jobs. Eventually it did catch up in terms of picture quality as well. And then the unique job, I’ve got here Disney does a fairly unique job. I think, in many ways, Build-A-Bear, the way you build certain bears that are unique to Build-A-Bear Workshop is also fairly unique. Now let’s move to quality. Better reliability. So there are slightly different definitions of quality. The way we are using it here is that you create a product or service, it’s really a product that lasts longer. In other words it doesn’t do anything different, necessarily in terms of having a feature that it does something that another product doesn’t do, or doesn’t do more jobs, it doesn’t necessarily do anything unique. It just lasts longer. So you could have a company that could clone, have the same body style as a Honda Civic, let’s say, but if you had the two vehicles the Civic would probably just last longer. And that’s what we mean by quality and reliability, is it’s not really that it differentiates on any particular feature or job to be done. It does the same job, but it just lasts longer. It does it for longer. So you may be a subtle distinction, but we are trying to distinguish between features that actually do something different for the customer, do a different job for the customer, and those that simply where it’s just a reliability factor.

Student: And that would be ______ (the beginning??) of a company’s life, so that’s just establishing the time. They didn’t establish themselves and say, “Hey we are going to last longer _____.

Professor: That’s right. It wasn’t until Toyota and Honda had been in the US car business for 20 years that people started realizing that they lasted longer, they went more miles. In fact I just saw an advertisement last night, Volkswagen’s advertisement or are now advertising they have more cars on the road with more than 100,000 miles trying to pitch this idea, our cars are more reliable, they will last longer, as a way to differentiate their product. And because companies will sometimes do that as a way to differentiate, it’s not like they are trying to do something like, our car does this or this or this that’s different. It just lasts longer. Alright, more convenient to find, purchase, or use. So this is thinking of convenience very broadly as an issue. We think of Starbucks and Coke as differentiating mainly on brand. When you think about Starbucks or Coke, we did the coke case, it’s mainly brand. And I think that is true. However, think about when, we are going to do a case on Starbucks on Wednesday, but Starbucks. If you’re in downtown San Francisco or downtown Seattle, you have to have a pretty poor arm to not be able to pick up a rock and throw it to the next Starbucks if you were standing at a Starbucks. They are so close, there are so many. They are so convenient that if you need a coffee, you don’t have to go hunt. There is a Starbucks that is really close within probably two blocks that you could walk to. And the convenience of being able to get it, also, is a differentiator, in addition to the brand. And that is true for Coke and Pepsi. Their vending machine network is so extensive that a lot of times we will go grab something that’s at the vending machine because that’s what is convenient. And if it happens to be a Coke machine, then we will take a Coke, or if it’s a Pepsi machine, then we will take a Pepsi or one of their Pepsi beverages. But it’s just more convenient to find. Or it’s more convenient to purchase. So that could be another difference. It is just easier to buy. One-click shopping at Amazon has made it easier for people to buy. They keep all your credit card information on file, so you just one-click and you’re done. You don’t have to reenter things in. That’s just more convenient. So there are a variety of ways that a product could be more convenient either to buy, to find, or to use. It could be more convenient to use. Yes?

Student: What’s the logic on Starbucks having stores across the street from each other?

Professor: Let’s save that, and I’ll ask you that on Wednesday.

Student: OK.

Professor: Alright. So think about that. Remind me to ask Samuel about what the answer would be because the answer to that is on Wednesday.

Student: Kind of referring back to his question about Nordstrom and how we categorize it. Is convenience to return the product?

Professor: Making it easy to return?

Student: Yeah. Does it matter how we categorize it as whether it is superior, better quality, or convenience.

Professor: So convenience, this is where you could argue that Nordstrom is more convenient. That is part of their better service, so they do a better job on that existing feature of convenience. So I think you could argue that there is some overlap there in terms of, well they do a better job on that existing feature by just being convenient. But because there are so many different ways you can be convenient, I think it is important. A lot of times, when you are thinking about how do we, the reason I want to give you this typology, this way of thinking about it is, let’s say you are sitting down, whether it is software or something else. You are working in Product Development and you are asking yourself how can we differentiate this product? What could we do that’s different? And then what you could do, is you can lay out and you say, “Ok. What are the things we think customers are looking for today? How do we do a better job on any of those?” Are there other things we could add to our product so that it could do more jobs than competing projects, or are there things that our product could do that others can’t do? Let’s look at that as an option. Is there something that we could trademark, or we could patent to do something that is unique relative to everybody else? Is there some way we could make our product more reliable than anybody else. The Energizer Bunny, it’s all about reliability. It’s not like the battery…It’s just that it lasts longer, right? But you could go through this and then you get to convenience and you say, “Is there any way we could make it more convenient to find, purchase, to use. Or is there any way we could create brand. So it gives you a way to systematically go through, and think of ways that you could differentiate a product or service. Does that make sense? That’s why it is nice to have this kind of taxonomy or set of categories because it gives you ways to sort of systematically go through and look for opportunities to differentiate a product or service. Finally, there is brand image. And we normally think about brand as a prestige or luxury. A lot of people think of, you hire Gucci, or Brosacci, or Prada, or whatever it might be because you want to be identifying yourself with that exclusive club. The job to be done is much more emotional than it is functional. Now there are Prada diaper bags, but I don’t know that there are. Usually young couples with young kids are looking more for diaper bags that are functional, that meet certain functional requirements as opposed to, maybe, the social or emotional, although I’m sure there probably are…

Student: Yeah, there are.

Professor: So I’m sure there are all types, but people maybe tend to move towards the functional for some kinds of products and others will move towards more the emotional. So we tend to think of it as luxury, but it doesn’t have to be luxury. Harley Davidson is kind of luxury, but as we talked about it, it really has more to do with personal identity that has to do with individualism, and a little bit of rebelliousness, and American’s, and so on. Jell-O, if you think about that brand, most of us…because certain products pioneer a product category they have their name associated with the product category. So technically it is gelatin. We don’t buy Jell-O. We buy gelatin. Jell-O is just the brand, and you can buy other kinds of gelatin, but because they were first, and they pioneered it. The same is true with Kleenex. We think about buying Kleenex instead of tissues. So sometimes you’ll see that. And then, Prius, I don’t think you’d see as a prestige brand necessarily, but would some people want to identify themselves with Prius. Why?

Student: Because they find the Prius environmentally conscious.

Professor: Yeah. It’s like, I want to demonstrate that I’m environmentally conscious and so I want to identify with that brand. So it could be a variety of different ways that you could connect with people. It doesn’t have to be necessarily prestige. And those tend to be the primary ways that you differentiate.

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Differentiation Advantages

Differentiation strategies require a deeper understanding of the customer’s needs than cost-based strategies.

This typically requires:

Customer segmentation analysis

Consumption chain analysis