To: e e Joan Smithfield, CEO, Smithfield Custom Furniture
From: e James Higgins, Senior Analyst, Smithfield Custom Furniture
Date: e April 2, 2022
Subject: Analysis of Diversifying Product Line
Mrs. Smithfield, this memo will answer the questions you have about the
decision to diversify our product line. It will use Porter’s Competitive
Advantage Model to analyze both proposals and make a recommendation
based on the results.
A. e e e Porter’s competitive advantage model is one of the tools used to
identify how a company can position itself in the marketplace by offering a
greater value than the competition. There are two distinct ways this can be
done. The first is to offer greater value through lower prices, the second is
to offer greater value through a higher perceived value. This perceived
value is generally created through differentiation that the customer is
willing to pay more for. This can be with higher quality, better features,
distinct branding, or ease of use. With these two strategies, Porter
developed 4 categories showing the high and low ends of each (Lumen,
n.d., Para. 5). Since there are companies that have strategies that lay
somewhere in the middle and have proven to operate with a high level of
success he developed the fifth category known as the integrated strategy
(Lumen, n.d., Para. 6). e e e
e e e e We can apply Porter’s competitive advantage model to our
decision-making process for our new product line. On one hand, we have a
high-end, high-quality product line that will be marketed towards the top
7.5% of our customer base. This product line will be focusing on the
greater value through the differentiation segment of Porter’s competitive
advantage model. The second option for the product line is to mass-
produce the lowest-priced product available. This strategy will be focusing
on greater value through the lower price quadrant of the strategy. Both of
these strategies have proven to be successful hence their place in Porter’s
strategy.
B. e e e Given the two possible paths forward for Smithfield Custom
Furniture and the research I have conducted, I feel that we would be best
positioned in the market if we went with the upscale, custom-crafted line
of new furniture. While the low-cost option had some advantages, they
were outweighed by the possible damage that a low-cost line could do to
our strong market reputation. With the market already being saturated with
reasonably priced furniture, we need to set ours apart. This differentiation
can only come from bringing the highest quality furniture built from the
most exotic resources available. By doing this we can maintain our
reputation while marketing to our top-tier customer base. With this, we will
make it difficult for our competition to imitate us thus reducing rivalry and
making it harder for our customers to find other alternatives (Lumen, n.d.,
Para. 7).
C. e e e If the leadership were to take my recommended actions there
would be a few more steps required to properly bring the new product line
to market. The first would be to conduct an external market analysis for
the new product line especially since we will be competing against different
companies and products in the industry. A great way we can accomplish
this would be to use a competitive profile matrix (CPM). This will analyze
our new market and look at the strengths and weaknesses we will face and
then allow us to decide where to focus on with our strategy (Jurevicius,
2021, Para. 1). The next step that I would recommend would be for us to
perform an internal factor evaluation (IFE). This would let us know what
areas we need to focus on internally and give us a more detailed result than
a basic SWOT analysis (Maxi-Pedia, 2017, Para. 15). Once we have the
results of both the IFE and CPM we can formulate a strategy, implement
that strategy, and finally perform a strategic evaluation to correct the
course if needed (Lumen, n.d., Fig. 1).
References
e Jurevicius, O. (2021, Nov 11). Competitive Profile Matrix (CPM).
Retrieved from strategicmanagementinsight.com:
https://strategicmanagementinsight.com/tools/competitive-profile-matrix-
cpm/
e Lumen. (n.d.). Principles of Management. Stages and Types of Strategy.
https://courses.lumenlearning.com/wmopen-
principlesofmanagement/chapter/stages-and-types-of-strategy/
