During last week’s session, we had briefly discussed product strategy options. We had a small discussion about how companies make themselves stand out and some of the ways of doing that were 1) differentiation, 2) have a low cost reputation, and 3) being known for rapid responses.
In a previous management class, my professor explained to me that rapid responses (or on a broader spectrum, customer service) is something that all companies need to work towards because it’s universally important in keeping customers coming back. I agree with what I was told and although there are companies that are better at customer service than others, being known for rapid responses, doesn’t necessarily make an industry or company any different from the next because it’s a concept that most companies try to practice. However, when it comes to differentiation and low cost, these are attributes that we can see in practice everywhere we go. I think a great way to portray this to look at food establishments. The U.S has countless places to eat but how do we decide where to go or what to eat?? In Chicago, one of “the fanciest” restaurants in town is known as Alinea. This restaurant is known for it’s completely unique and futuristic techniques in preparing their food. Visually appealing and very well-known for some of the greatest culinary feats in Chicago, the bill foots out be a minimum of $210 per person. This is a perfect example of differentiation because clearly, this place isn’t going for low cost but instead it has this reputation of being high-end, having wonderful staff, being ahead of it’s time, and (let’s not forget) expensive.
Taking a look on the opposite side of things, let’s examine a place such as McDonald’s. It’s an everyday, “go-to” place when people want a quick and cheap meal. The minimum bill here can be as low as $0.50 if you wanted it to be! There is not as much discrimination at McDonald’s as there is when you compare the type of audience that may prefer a place such as Alinea. Not that it’s a bad thing but there is clearly a different goal trying to be reached by both businesses. This made me think, “well…can there be such a thing as to have both attributes of being low cost but also being different?” I lean toward the no because to stand out, you really have to put in the money to create the image that you want. Apple has their iPad priced the way it is for a reason – that the technology inside and the appeal of the device – probably needed a lot of research, investment…money. If each iPad needed to follow a $200 budget, I don’t know if the product we know today would be as good.
What do you think? Can differentiation coexist with low costs?
I honestly don’t think a company can approach both strategies. In my MGT 300 class, the professor had us run an online simulation of a coffee shop. It was a great experience because we realized how small decisions such as the kind of furniture or price of cups of coffee influenced the business. In my particular group we were not sure of our strategy, and we got losses because we wanted to look different (with a green theme furniture) and give high quality products (organic coffee), but we wanted to charge very low to attract more clients. During the first couple of weeks we failed a lot, but around the 4th week we realized that the differentiation strategy turned out to me more profitable for us. At the end of the quarter, all groups presented and all groups mentioned that they struggle and even failed because they wanted to approach both strategies.
I think if a manager of a company wants to approach both strategies, that person would need to make up his mind because I now know that it is impossible. When I think about it, I don’t think any successful company is trying to achieve more. For example, if Apple tries to approach the low cost, they will a lot of money and if Dunkin donuts wants be different and charge more they will lose so many clients
You bring up a good point. Perhaps differentiation with low costs can exist but only for products that are suppose to be “affordable”. We see what McDonald’s prices are compared to Burger King or Wendy’s. They are usually around the same ball park. What makes each competitor different is the taste of their food or some product only one chain can serve. In your example of the iPad, perhaps Apple doesn’t want to lower their price because they know that they don’t bring customers in for their affordability, but for their innovation. I guess the innovation is worth the hefty price tag.