Triangulation Bus/475 week 3, 3 questions

Triangulation Bus/475 week 3, 3 questions

1) QUESTION :As stated in our reading there are advantages and disadvantages to each of the 5 generic competitive strategies. Based on these, what are your thoughts on these strategies. Are some better than others? Which one would you choose if you opened a business and why? MINIMUM 75 WORDS PLEASE SEE ATTACHMENT “LEARNING” TO COMPLETE —————————– —————————————————————————————————————————————————————————————- 2) QUESTION: How can companies benefit from related diversification? Unrelated diversification? How important is diversification to the long and short term success of the company? MINIMUM 75 WORDS ——————————————- ————————————————————————————————————————————————————————- 3) QUESTION: What are some of the advantages and disadvantages associated with expansion into international markets? Why do we see such drastic differences between those that manage it successfully and those that fail?

Learning from Mistakes

Some of the most widely known brands in the bread and snack foods arena have been owned by the Hostess Corporation.¹ Since the 1930s, Hostess Brands (originally founded as Interstate Bakeries) produced a range of popular baked goods, including Wonder Bread, Twinkies, Ring Dings, Yodels, Zingers, and many other products. Even with its iconic brands and sales in of $2.5 billion a year, Hostess Brands found itself in a perilous situation and went into bankruptcy in 2012. Unable to find a workable solution to remain viable, in November 2012, Hostess closed down all of its bakeries and was forced to liquidate and sell off its brands to other bakeries. With the strength of their brands and their longstanding market position, it was a surprise to many seeing the firm fail. What went wrong?

The viability of a firm’s business-level strategy is driven by both the internal operations of a firm and the desires and preferences of the market. Firms that succeed have the appropriate resources and cost structure to meet the needs of the environment. Hostess had long differentiated themselves in the baked goods business by producing simple yet flavorful baked snack goods that were staples in kids’ lunchboxes for generations. Their strong position in the environment was undone by a combination of forces.

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Central to Hostess’s decline was a change in customer preferences that they did not effectively respond to. From the 1950s through the 1970s, the heyday of Hostess, customers had a strong demand for tasty processed snack foods. However, in recent years, there has been an increasing trend to more natural and healthier snack products. Hostess was unable to significantly expand their product portfolio with baked goods that met these evolving tastes. As a result, they found themselves with declining demand for their products, seeing their sales drop by 28 percent from 2004 to 2011. Additionally, since their products were fairly simple, they found their ability to differentiate their products declining as other bakeries imitated their core products. This left them with very little ability to increase their prices to generate a profit.

Along with declining demand and product differentiation, Hostess had a cost structure that severely hampered their ability to rebuild their market position. Hostess’s workforce of 19,000 was mostly unionized, and their labor contracts made it hard for Hostess to rein in their cost structure and operations to match the demand conditions they faced. Rather than having a single relationship with their workforce, they had 372 contractual agreements with dozens of different labor unions. These agreements limited their ability to close any of their 36 bakery plants or over 500 distribution centers to match the lower demand for their contracts. They also limited the firm’s ability to streamline their distribution system. As a result, rather than having one delivery truck service per store, they often sent a number of trucks to deliver different brands to a single store.

Hostess found itself with a high cost operating structure in a market where their products were no longer highly differentiated and experiencing reduced demand. This is not a winning combination. Not surprisingly, Hostess lost $342 million in 2011 and was unable to meet its debt obligations in 2012. Its brands will survive under new ownership, but the new owners will need to either figure out how to better differentiate their products in today’s demanding market or produce these products at a lower cost.

Discussion Questions

1. How challenging is it to differentiate Hostess’ products in today’s health conscious marketplace?
2. Should the new owners of the Hostess brands strive to develop more health conscious snack goods or ignore the health trends and produce as tasty and rich a product as possible?

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In order to create and sustain a competitive advantage, companies such as Hostess need to analyze the needs and preferences of their customers and work to reinforce the value of their products for customers. They should not focus only on their internal operations. By not listening to their customers and responding to their evolving needs, Hostess and many other firms have seen their performance drop and even their existence challenged.

business-level strategy

a strategy designed for a firm or a division of a firm that competes within a single business.

LO5.1

The central role of competitive advantage in the study of strategic management, and the three generic strategies: overall cost leadership, differentiation, and focus.

Types of Competitive Advantage and Sustainability

Michael Porter presented three generic strategies that a firm can use to overcome the five forces and achieve competitive advantage.² Each of Porter’s generic strategies has the potential to allow a firm to outperform rivals in their industry. The first, overall cost leadership, is based on creating a low-cost-position. Here, a firm must manage the relationships throughout the value chain and lower costs throughout the entire chain. Second, differentiation requires a firm to create products and/or services that are unique and valued. Here, the primary emphasis is on “nonprice” attributes for which customers will gladly pay a premium.³ Third, a focus strategy directs attention (or “focus”) toward narrow product lines, buyer segments, or targeted geographic markets and they must attain advantages either through differentiation or cost leadership.⁴ Whereas the overall cost leadership and differentiation strategies strive to attain advantages industrywide, focusers have a narrow target market in mind. Exhibit 5.1 illustrates these three strategies on two dimensions: competitive advantage and strategic target.

generic strategies

basic types of business level strategies based on breadth of target market (industrywide versus narrow market segment) and type of competitive advantage (low cost versus uniqueness).

Both casual observation and research support the notion that firms that identify with one or more of the forms of competitive advantage outperform those that do not.⁵ There has been a rich history of strategic management research addressing this topic. One study analyzed 1,789 strategic business units and found that businesses combining multiple forms of competitive advantage (differentiation and overall cost leadership) outperformed businesses that used only a single form. The lowest performers were those that did not identify with any type of advantage. They were classified as “stuck in the middle.” Results of this study are presented in Exhibit 5.2.⁶

For an example of the dangers of being “stuck in the middle,” consider the traditional supermarket.⁷ The major supermarket chains, such as Kroger, Ralphs, and Albertsons, used to be the main source of groceries for consumers. However, they find themselves in a situation today where affluent customers are going upmarket to get their organic and gourmet foods at retailers like Whole Foods Market and budget-conscious consumers are drifting to discount chains such as Walmart, Aldi, and Dollar General.

EXHIBIT 5.1 Three Generic Strategies

Source: Adapted and reprinted with the permission of The Free Press, a division of Simon & Schuster Inc. from Competitive Strategy: Techniques for Analyzing Industries and Competitors Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved.

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EXHIBIT 5.2 Competitive Advantage and Business Performance

Overall Cost Leadership

The first generic strategy is overall cost leadership. Overall cost leadership requires a tight set of interrelated tactics that include:

• Aggressive construction of efficient-scale facilities.
• Vigorous pursuit of cost reductions from experience.
• Tight cost and overhead control.
• Avoidance of marginal customer accounts.
• Cost minimization in all activities in the firm’s value chain, such as R&D, service, sales force, and advertising.

overall cost leadership

a firm’s generic strategy based on appeal to the industrywide market using a competitive advantage based on low cost.

Exhibit 5.3 draws on the value-chain concept (see Chapter 3) to provide examples of how a firm can attain an overall cost leadership strategy in its primary and support activities.

One factor often central to an overall cost leadership strategy is the experience curve, which refers to how business “learns” to lower costs as it gains experience with production processes. With experience, unit costs of production decline as output increases in most industries. The experience curve, developed by the Boston Consulting Group in 1968, is a way of looking at efficiency gains that come with experience. For a range of products, as cumulative experience doubles, costs and labor hours needed to produce a unit of product decline by 10 to 30 percent. There are a number of reasons why we find this effect. Among the most common factors are workers getting better at what they do, product designs being simplified as the product matures, and production processes being automated and streamlined. However, experience curve gains will only be the foundation for a cost advantage if the firm knows the source of the cost reduction and can keep these gains proprietary.

experience curve

the decline in unit costs of production as cumulative output increases.

To generate above-average performance, a firm following an overall cost leadership position must attain competitive parity on the basis of differentiation relative to competitors.⁸ In other words, a firm achieving parity is similar to its competitors, or “on par,” with respect to differentiated products.⁹ Competitive parity on the basis of differentiation permits a cost leader to translate cost advantages directly into higher profits than competitors. Thus, the cost leader earns above-average returns.¹⁰

competitive parity

a firm’s achievement of similarity, or being “on par,” with competitors with respect to low cost, differentiation, or other strategic product characteristic.

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EXHIBIT 5.3 Value-Chain Activities: Examples of Overall Cost Leadership

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Source: Adapted from: Porter, M.E. 1985. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press.

The failure to attain parity on the basis of differentiation can be illustrated with an example from the automobile industry—the ill-fated Yugo. Below is an excerpt from a speech by J. W. Marriott, Jr., Chairman of the Marriott Corporation:¹¹

… money is a big thing. But it’s not the only thing. In the 1980s, a new automobile reached North America from behind the Iron Curtain. It was called the Yugo, and its main attraction was price. About $3,000 each. But the only way they caught on was as the butt of jokes. Remember the guy who told his mechanic, “I want a gas cap for my Yugo.” “OK,” the mechanic replied, “that sounds like a fair trade.”

Yugo was offering a lousy value proposition. The cars literally fell apart before your eyes. And the lesson was simple. Price is just one component of value. No matter how good the price, the most cost-sensitive consumer won’t buy a bad product.

Gordon Bethune, the former CEO of Continental Airlines, summed up the need to provide good products or services when employing a low cost strategy this way: “You can make a pizza so cheap, nobody will buy it.”¹²

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Next, we discuss some examples of how firms enhance cost leadership position.

Aldi, a discount supermarket retailer, has grown from its German base to the rest of Europe, Australia, and the United States by replicating a simple business format. Aldi limits the number of products (SKUs in the grocery business) in each category to ensure product turn, to ease stocking shelves, and to increase its power over suppliers. It also sells mostly private label products to minimize cost. It has small, efficient, and simply designed stores. It offers limited services and expects customers to bring their own bags and bag their own groceries. As a result, Aldi can offer their products at prices 40 percent lower than competing supermarkets.¹³

Tesco, Britain’s largest grocery retailer, has changed how they view waste in order to become more efficient. To cut their costs, they have begun shipping off food waste to bio-energy plants to convert the waste to electricity. This allows Tesco to both avoid landfill taxes of $98 per ton and also save on the cost of their electricity by providing the fuel for the power plant. Tesco is saving $3 million dollars a year alone in landfill taxes by simply sending their used cooking oil and chicken fat to be used to generate bioenergy rather than putting it in a landfill. Overall, Tesco estimates that energy saving efforts are shaving over $300 million a year from its energy bills.¹⁴

Harley Davidson has also worked to streamline its operations to significantly improve its cost position. In their York, Pennsylvania, plant, they have moved to a flexible production system that requires only five job classifications rather than the 62 they had before. Workers now have a wider variety of skills and can move where needed in the plant. They have also automated their production process, allowing them to reduce their production workforce from over 1,000 workers down to around 500. They have made similar changes in other plants. This has allowed them to keep production in the United States and cut production costs by at least $275 million. As a result, Harley’s operating profit margin rose from 12.5 percent in 2009 to 16 percent in 2012.¹⁵

A business that strives for a low-cost advantage must attain an absolute cost advantage relative to its rivals.¹⁶ This is typically accomplished by offering a no-frills product or service to a broad target market using standardization to derive the greatest benefits from economies of scale and experience. However, such a strategy may fail if a firm is unable to attain parity on important dimensions of differentiation such as quick responses to customer requests for services or design changes. Strategy Spotlight 5.1 discusses how Renault is leveraging a low cost strategy to draw in auto buyers in Europe.

Overall Cost Leadership: Improving Competitive Position vis-à-vis the Five Forces   An overall low-cost position enables a firm to achieve above-average returns despite strong competition. It protects a firm against rivalry from competitors, because lower costs allow a firm to earn returns even if its competitors eroded their profits through intense rivalry. A low-cost position also protects firms against powerful buyers. Buyers can exert power to drive down prices only to the level of the next most efficient producer. Also, a low-cost position provides more flexibility to cope with demands from powerful suppliers for input cost increases. The factors that lead to a low-cost position also provide substantial entry barriers position with respect to substitute products introduced by new and existing competitors.¹⁷

LO5.2

How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.

A few examples will illustrate these points. Harley Davidson’s close attention to costs helps to protect them from buyer power and intense rivalry from competitors. Thus, they are able to drive down costs and enjoy relatively high power over their customers. By increasing productivity and lowering unit costs, Renault both lessens the degree of rivalry it faces and increases entry barriers for new entrants. Aldi’s extreme focus on minimizing costs across its operations makes it less vulnerable to substitutes, such as discount retailers like Walmart and dollar stores.

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RENAULT FINDS LOW COST WORKS WELL IN THE NEW EUROPE

The European economic crisis has changed how Renault, a French car maker, designs and produces cars for European customers. Historically, European car buyers have been sophisticated, demanding well-designed, feature-laden cars from manufacturers. When the economic crisis hit Europe in 2007, automakers saw a dramatic shift in demand. Overall demand dropped, and the customers who did come in to buy became much more cost conscious.

In these difficult conditions, Renault has been able to carve out a profitable market for itself, selling low-cost, no-frills cars. Renault responded to this shift by creating an entry-level car group that was charged with designing and producing cars for these more cost conscious consumers. For example, they took an ultra-cheap car, the Logan, that was originally aimed for emerging markets and redesigned it to meet the new needs of the European market. The boxy sedan, which sells for around $10,000, is now one of Renault’s best sellers. Its entry-level cars accounted for 30 percent of the cars sold by Renault in 2011 and generated operating profit margins over twice the profit margins of the higher priced cars Renault sold.

What is the recipe for success Renault has found to generate high profits on low-priced cars? It uses simple designs that incorporate components from older car designs at Renault and employs a no-discount retail policy. At the center of their design procedure is a “design-to-cost” philosophy. In this process, designers and engineers no longer strive for the cutting edge. Instead, they focus on choosing parts and materials for simplicity, ease of manufacturing, and availability. This often involves using components that were engineered for prior vehicle designs. When needing a new component, Renault begins by assessing how much customers would be willing to pay for certain features, such as air conditioning or power door locks, and then asks suppliers whether they can propose a way to offer this feature at a cost that matches what customers are willing to pay.

As they face imitation of this strategy by Volkswagen and Toyota, Renault is not sitting idle. As Carlos Ghosn, Renault’s CEO, stated, “Our low-cost offering isn’t low-cost enough. So we’re working on a new platform that will be ultra low-cost.”

Sources: Pearson, D. 2012. Renault takes low-cost lead. wsj.com, April 16: np.; and Ciferri, L. 2013. How Renault’s low-cost Dacia has become a “cash cow.” Automotive News Europe, January 3: np.

Potential Pitfalls of Overall Cost Leadership Strategies   Potential pitfalls of overall cost leadership strategy include:

LO5.3

The pitfalls managers must avoid in striving to attain generic strategies.

• Too much focus on one or a few value-chain activities. Would you consider a person to be astute if he cancelled his newspaper subscription and quit eating out to save money, but then “maxed out” several credit cards, requiring him to pay hundreds of dollars a month in interest charges? Of course not. Similarly, firms need to pay attention to all activities in the value chain.¹⁸ Too often managers make big cuts in operating expenses, but don’t question year-to-year spending on capital projects. Or managers may decide to cut selling and marketing expenses but ignore manufacturing expenses. Managers should explore all value-chain activities, including relationships among them, as candidates for cost reductions.
• Increase in the cost of the inputs on which the advantage is based. Firms can be vulnerable to price increases in the factors of production. For example, consider manufacturing firms based in China which rely on low labor costs. Due to demographic factors, the supply of workers 16 to 24 years old has peaked and will drop by a third in the next 12 years, thanks to stringent family-planning policies that have sharply reduced China’s population growth.¹⁹ This is leading to upward pressure on labor costs in Chinese factories, undercutting the cost advantage of firms producing there.
• The strategy is imitated too easily. One of the common pitfalls of a cost-leadership strategy is that a firm’s strategy may consist of value-creating activities that are easy to imitate.²⁰ Such has been the case with online brokers in recent years.²¹ As

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of early 2013, there were over 200 online brokers listed on allstocks.com, hardly symbolic of an industry where imitation is extremely difficult. And according to Henry McVey, financial services analyst at Morgan Stanley, “We think you need five to ten” online brokers.

• A lack of parity on differentiation. As noted earlier, firms striving to attain cost leadership advantages must obtain a level of parity on differentiation.²² Firms providing online degree programs may offer low prices. However, they may not be successful unless they can offer instruction that is perceived as comparable to traditional providers. For them, parity can be achieved on differentiation dimensions such as reputation and quality and through signaling mechanisms such as accreditation agencies.
• Reduced flexibility. Building up a low-cost advantage often requires significant investments in plant and equipment, distribution systems, and large, economically scaled operations. As a result, firms often find that these investments limit their flexibility, leading to great difficulty responding to changes in the environment. For example, Coors Brewing developed a highly efficient, large-scale brewery in Golden, Colorado. Coors was one of the most efficient brewers in the world, but their plant was designed to mass produce one or two types of beer. When the craft brewing craze started to grow, their plant was not well equipped to produce smaller batches of craft beer, and they found it difficult to meet this opportunity. Ultimately, they had to buy their way into this movement by acquiring small craft breweries.²³
• Obsolescence of the basis of cost advantage. Ultimately, the foundation of a firm’s cost advantage may become obsolete. In these circumstances, other firms develop new ways of cutting costs, leaving the old cost leaders at a significant disadvantage. The older cost leaders are often locked into their way of competing and are unable to respond to the newer, lower-cost means of competing. This is what happened to the U.S. auto industry in the 1970s. Ford, GM, and Chrysler had built up efficient mass manufacturing auto plants. However, when Toyota and other Japanese manufacturers moved into the North American car market using lean manufacturing, a new and more efficient means of production, the U.S. firms found themselves at a significant cost disadvantage. It took the U.S. firms over 30 years to redesign and retool their plants and restructure the responsibilities of line workers to get to where they were on cost parity with the Japanese firms.

Differentiation

As the name implies, a differentiation strategy consists of creating differences in the firm’s product or service offering by creating something that is perceived industrywide as unique and valued by customers.²⁴ Differentiation can take many forms:

differentiation strategy

a firm’s generic strategy based on creating differences in the firm’s product or service offering by creating something that is perceived industrywide as unique and valued by customers.

• Prestige or brand image (Adam’s Mark hotels, BMW automobiles).²⁵
• Technology (Martin guitars, Marantz stereo components, North Face camping equipment).
• Innovation (Medtronic medical equipment, Apple’s iPhones and iPads).
• Features (Cannondale mountain bikes, Honda Goldwing motorcycles).
• Customer service (Nordstrom department stores, Sears lawn equipment retailing).
• Dealer network (Lexus automobiles, Caterpillar earthmoving equipment).

Exhibit 5.4 draws on the concept of the value chain as an example of how firms may differentiate themselves in primary and support activities.

Firms may differentiate themselves along several different dimensions at once.²⁶ For example, the Cheesecake Factory, an upscale casual restaurant, differentiates itself by

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offering high quality food, the widest and deepest menu in its class of restaurants, and premium locations.²⁷

EXHIBIT 5.4 Value-Chain Activities: Examples of Differentiation

_______________

Source: Adapted from Porter, M.E. 1985. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press.

Firms achieve and sustain differentiation advantages and attain above-average performance when their price premiums exceed the extra costs incurred in being unique.²⁸ For example, the Cheesecake Factory must increase consumer prices to offset the higher cost of premium real estate and producing such a wide menu. Thus, a differentiator will always seek out ways of distinguishing itself from similar competitors to justify price premiums greater than the costs incurred by differentiating.²⁹ Clearly, a differentiator cannot ignore costs. After all, its premium prices would be eroded by a markedly inferior cost position. Therefore, it must attain a level of cost parity relative to competitors. Differentiators can do

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this by reducing costs in all areas that do not affect differentiation. Porsche, for example, invests heavily in engine design—an area in which its customers demand excellence—but it is less concerned and spends fewer resources in the design of the instrument panel or the arrangement of switches on the radio.³⁰

Many companies successfully follow a differentiation strategy. For example, Zappos may sell shoes, but it sees the core element of its differentiation advantage as service. Zappos CEO Tony Hsieh puts it this way.³¹

“We hope that 10 years from now people won’t even realize that we started out selling shoes online, and that when you say ‘Zappos,’ they’ll think, ‘Oh, that’s the place with the absolute best customer service.’ And that doesn’t even have to be limited to being an online experience. We’ve had customers email us and ask us if we would please start an airline, or run the IRS.”

This emphasis on service has led to great success. Growing from an idea to a billion dollar company in only a dozen years, Zappos is seeing the benefits of providing exemplary service.

Lexus, a division of Toyota, provides an example of how a firm can strengthen its differentiation strategy by achieving integration at multiple points along the value chain.³² Although the luxury car line was not introduced until the late 1980s, by the early 1990s the cars had already soared to the top of J. D. Power & Associates’ customer satisfaction ratings.

In the spirit of benchmarking, one of Lexus’s competitors hired Custom Research Inc. (CRI), a marketing research firm, to find out why Lexus owners were so satisfied. CRI conducted a series of focus groups in which Lexus drivers eagerly offered anecdotes about the special care they experienced from their dealers. It became clear that, although Lexus was manufacturing cars with few mechanical defects, it was the extra care shown by the sales and service staff that resulted in satisfied customers. Such pampering is reflected in the feedback from one customer who claimed she never had a problem with her Lexus. However, upon further probing, she said, “Well, I suppose you could call the four times they had to replace the windshield a ‘problem.’ But frankly, they took care of it so well and always gave me a loaner car, so I never really considered it a problem until you mentioned it now.” An insight gained in CRI’s research is that perceptions of product quality (design, engineering, and manufacturing) can be strongly influenced by downstream activities in the value chain (marketing and sales, service).

Strategy Spotlight 5.2 discusses how Unilever, a global consumer products firm, uses crowdsourcing to differentiate itself through increased sustainability.

Differentiation: Improving Competitive Position vis-à-vis the Five Forces   Differentiation provides protection against rivalry since brand loyalty lowers customer sensitivity to price and raises customer switching costs.³³ By increasing a firm’s margins, differentiation also avoids the need for a low-cost position. Higher entry barriers result because of customer loyalty and the firm’s ability to provide uniqueness in its products or services.³⁴ Differentiation also provides higher margins that enable a firm to deal with supplier power. And it reduces buyer power, because buyers lack comparable alternatives and are therefore less price sensitive.³⁵ Supplier power is also decreased because there is a certain amount of prestige associated with being the supplier to a producer of highly differentiated products and services. Last, differentiation enhances customer loyalty, thus reducing the threat from substitutes.³⁶

Our examples illustrate these points. Lexus has enjoyed enhanced power over buyers because its top J. D. Power ranking makes buyers more willing to pay a premium price. This lessens rivalry, since buyers become less price-sensitive. The prestige associated with its brand name also lowers supplier power since margins are high. Suppliers would probably desire to be associated with prestige brands, thus lessening their incentives to drive up

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prices. Finally, the loyalty and “peace of mind” associated with a service provider such as FedEx makes such firms less vulnerable to rivalry or substitute products and services.

CROWDSOURCING FOR DIFFERENTIATION IDEAS: UNILEVER’S EFFORTS TO PROPEL FORWARD ITS SUSTAINABILITY INITIATIVES

Unilever, a global manufacturer of consumer products such as Dove soap, Ben and Jerry’s ice cream, Lipton ice tea, Axe deodorants, and many other widely used products, is aiming to lead the market in its ability to run a sustainable business enterprise. As part of this effort, they published their Sustainable Living Plan in November 2010. Included in this plan were their ambitious goals to reduce the environmental footprint of Unilever by 50 percent and source all of their agricultural inputs from sustainable growers by 2020.

Knowing that these goals will be challenging to achieve, Uni-lever turned to the power of the crowd to develop initiatives to meet these targets. In April 2012, they hosted a 24-hour global crowdsourcing event, called the Sustainable Living Lab, to generate creative ideas on how to improve their sustainability. Speaking of the challenges facing Unilever as they strive to lead the market in sustainability, Miguel Pestana, VP of Global External Affairs at Unilever, stated, “We can’t solve these issues on our own. We need to engage with civil society, companies, government, and other key stakeholders.” Unilever designed this as an invitation-only event where they would get input from sustainability leaders and experts. The response they received from invited participants was very positive, with over 2200 individuals, including over 100 Unilever managers, coming together to co-create ideas and solutions to advance Unilever’s agenda of increasing the sustainability of their business and product line. They hosted discussion groups on four broad topics that encompassed activities across the entire value chain of Unilever. The topics discussed were sustainable sourcing, sustainable production and distribution, consumer behavior change, and recycling and waste.

The boards generated a large volume of discussion and also triggered a follow-up survey completed by over 400 participants. Unilever sees this event as a starting point, noting the need to remain committed to further developing the ideas generated in the event. Specifically, they plan to use the discussions as a basis on which to extend current and develop new partnerships with participating firms and organizations to help them achieve their sustainability goals. As one participant noted, “This was a great step to enable external specialists to collaborate with internal Unilever experts on key issues. This in itself was a significant step. The next step is to see how this could lead to collaboration that helps Uni-lever to drive more change to create a more sustainable sector.”

Sources: Holme, C. 2012. How Unilever crowdsourced creativity to meet its sustainability goals. Greenbiz.com, June 7, np; and Peluso, M. 2012. Unilever to crowdsource sustainability. MarketingWeek, April 10, np.

Potential Pitfalls of Differentiation Strategies Potential pitfalls of a differentiation strategy include:

• Uniqueness that is not valuable. A differentiation strategy must provide unique bundles of products and/or services that customers value highly. It’s not enough just to be “different.” An example is Gibson’s Dobro bass guitar. Gibson came up with a unique idea: Design and build an acoustic bass guitar with sufficient sound volume so that amplification wasn’t necessary. The problem with other acoustic bass guitars was that they did not project enough volume because of the low-frequency bass notes. By adding a resonator plate on the body of the traditional acoustic bass, Gibson increased the sound volume. Gibson believed this product would serve a particular niche market—bluegrass and folk artists who played in small group “jams” with other acoustic musicians. Unfortunately, Gibson soon discovered that its targeted market was content with their existing options: an upright bass amplified with a microphone or an acoustic electric guitar. Thus, Gibson developed a unique product, but it was not perceived as valuable by its potential customers.³⁷
• Too much differentiation. Firms may strive for quality or service that is higher than customers desire.³⁸ Thus, they become vulnerable to competitors who provide an appropriate level of quality at a lower price. For example, consider the expensive

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Mercedes-Benz S-Class, which ranged in price between $93,650 and $138,000 for the 2011 models.³⁹ Consumer Reports described it as “sumptuous,” “quiet and luxurious,” and a “delight to drive.” The magazine also considered it to be the least reliable sedan available in the United States. According to David Champion, who runs their testing program, the problems are electronic. “The engineers have gone a little wild,” he says. “They’ve put every bell and whistle that they think of, and sometimes they don’t have the attention to detail to make these systems work.” Some features include: a computer-driven suspension that reduces body roll as the vehicle whips around a corner; cruise control that automatically slows the car down if it gets too

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