Understand your competitive differentiation

Mapping propositions, competition and regulation onto the same market space-centric value chain provides a powerful way of shaping and refining new products and services — but it can also provide powerful insights into competitive differentiation for new products and services.

Differentiation based on focusing on a single or on adjacent parts of the value chain

New products and services can be differentiated on the basis that they provide new or different functionality, the way or form in which this is provided, whether this functionality is delivered more effectively, or whether it is provided more efficiently. This is consistent with conventional ways of describing product or service differentiation.

Example

A new type of medical diagnostic product may measure a property not previously measured, or may do it differently (for example non-intrusively), or do it more efficiently so that it does not require specialist staff to operate the equipment, or it may do this at a lower cost.

Differentiation based on overall value chain impact

Competitive differentiation based on this approach depends on the product or service occupying new or broader parts of the value chain, the effect of which is to deliver integrated functionality for users and customers, often with improved effectiveness and efficiency. The ultimate expression of this kind of competitive differentiation is for the new product or service to assume a gatekeeper role in the value chain, which controls the provision of other products and services. This can enable strategic dominance based on controlling a key part of the value chain.

Example

Smart phone providers can provide additional services such as music on the phone or enable real-time mapping and navigation services using the same device. This can be used to differentiate the core product from competitors who do not provide these additional services. A good example of a ‘gatekeeper’ role is the role played by conditional access systems in television, where the provider can control access to content and associated services from other players, based on controlling the distribution system.

Differentiation based on reframing the value chain

The most radical competitive strategy for a firm is to effectively reframe the overall value chain which governs relationships between the various players in the market space. This can lead to the creation of new types of customers, new types of market space players and the need for new roles in this new environment. It can be used to create new products and services, new business models and to change the rules for competition.

Example

An example of this kind of redrawing of the market space and the associated market space-centric value chain is what is happening in the energy and lighting market space: the previous market space based on concentrated power generation in conjunction with an integrated power distribution system is being supplanted by a market space in which power generation, storage and distribution are highly distributed. This is radically changing the nature and role of the firms engaged in the market space, their business models and the nature of competition and regulation.

What do you think? Share your thoughts with the Educators and others on the course in the comments section below.