Critical evaluation of service firm differentiation and competitive advantage

Competitive Advantage

In contemporary times, competition is getting tougher with the passage of time and therefore product leaders are propelled to present novel and unprecedented products, nevertheless, what is meant by 'best product'? And which type of product decisions do the product leaders make in this regard? Generally, when consumers purchase a product they comprehend that it gives them a superior level of satisfaction as compared to the other competing products in the market. For instance, when consumers purchase a Ferrari they comprehend that they are the owner of a car with luxurious interior, better motor, and a superior design compared to a majority of the cars present in the market. Furthermore, when consumers select McKinsey over any other consultant of the business market, they comprehend that they will obtain a better suggestion as compared to the suggestion from other consultants. However, what precise product benefits do the product leaders actually present?

Body of Research -- Line of Reasoning

Product leaders possess a tendency of presenting enhanced product quality as compared to other companies. Product quality incorporates two essential constituents which are: consistency and level. Product quality level specifies the ability of a particular product in satisfying the consumer needs, and it is determined by evaluating the performance of that product in the target market. In this context, product quality level represents performance quality (Kotler, and Armstrong, 2001). For instance, audio products of Bose entail greater sound and acoustics quality. The shows performed by Cirque du Soleil compared to those performed by other circus groups are far more professional and daunting. Google is perhaps the most wide-ranging and top-notch search engine compared to other search engines on the internet.

Enhanced quality along with greater product quality level also represents high degree of product quality consistency. Armstrong and Kotler state that, product quality represents conformance quality which means that a product is free from deficiencies and is consistent in providing an intended degree of performance (Kotler, and Armstrong, 2001). The phenomenon of Total Quality Movement chiefly represents conformance quality when they mention "quality is free." The notion of this phenomenon is that appropriate investment towards process enhancement will certainly diminish the variations in scrap, warranty costs, output, and rework losses.

Toyota has attained its present quality image by the exertions made in enhancing the conformance quality instead of performance quality; therefore it is advisable for companies to endeavor in enhancing the conformance quality. Hence, McDonalds through similar technique will be able to provide greater (conformance) quality compared to other three-star restaurants, by tenaciously providing the quality according to the consumers' expectations.

On the basis of these notions it is quite obvious that the product leaders endeavor to enhance the conformance and performance quality of their product; whilst, majority of companies (incorporating operational excellence firms) just focus on conformance quality (Verweire and Revollo, 2009).

Product features

Product features is normally referred to the observable or discernible properties of a service or product, and product leaders always accentuate on enhancing the properties of their products as compared to those of their competitors. Furthermore, they usually introduce new properties to create a distinctive image of their brands in order to extend their competitive edge, and majority of the product leaders are unequivocal and expressive regarding the properties of their products. Rolex, a Swiss-based luxurious watch making company expresses the special properties of its diverse collections. Porsche distributes the technical specification information for all of its diverse models (Verweire and Revollo, 2009).

In competing with other companies in a market, it is quite effectual to pioneer a novel property which is aligned to the necessities of the target market. For instance, Tiodos Bank is deemed as the pioneer of introducing socially responsible investments in the bank's product portfolio. Introduction of a novel property always facilitates in providing a distinctive image to a product as compared to the competing products. Benetton introduced color in fashion apparel industry and centered its whole branding campaign, United Colors of Benetton, on the basis of this subject. Afterwards Benetton introduced the Playlife American College and glamour-oriented Sisley style (Verweire and Revollo, 2009).

Product style and design

Companies like Bang and Olusen, Ferrari, Apple, and Alessi vigorously implement styling and designing as they are essential constituents for creating differentiation. Armstrong and Kotler delineate both of these constituents as: Style represents the physical formulation or properties of a product, which can be made attractive and striking in order to amaze an individual but it cannot, by any means, enhance the performance of a product. On the other hand, design of a product incorporates a much greater function than style. It penetrates to the core properties of a product facilitating in augmenting the performance of that product along with enhancing its physical properties (Kotler and Armstrong, 2001).

The best example to have a significant difference in the field of phone and MP3 market by using style as well as design is Apple. iPod, one of the products of Apple, is considered as an icon of design. There are questions like -- how does this happen? The reason behind this is that iPod is something that was new in the market. The other question is related to its shape and its buttons -- and essentially it is it merely a stylistic rectangular block with some basic functional buttons on the surface. Original iPod's shape is based on golden ratio. Golden ratio can be found in nature, ancient Greek art well as in mathematics. To build a visual brand image, Apple has focused on every minute detail which includes radii of rounded corners, glossy surface to the unexposed screws and minimum number of buttons. Another aspect is the user interface. It is very intuitive, that is we can find the desired song in a very short time. It can also be easily connected to the computer and when ever connected its starts charging. Other then this, with the help of the iTunes software, we can transfer songs and manage our music very efficiently. In addition to managing and transferring music, an individual can also buy some songs with a single click. The main aim of the design is to make life simple and easy. The user interface is not limited to the screen of the product. It stores all the points that an individual goes through whenever he is finding and sorting through his music collection. Bush and Hwang (2008), in their study, highlight that "stories persist to this day of Steve Jobs returning prototype after prototype of the iPod to the lab bench because he could not get to his desired song within three clicks" (Bush and Hwang, 2008).

Bang & Olufen is another company which is considered to be a design-oriented and innovative company. The designers at B&O are given free choice to create an innovative and new product which would be challenging for the engineers to manufacture. The reason behind not hiring an in-house designer is that his creativity may be affected by the limitation of the manufacturing ability (Austin R.E and Beyersdorfer, 2007).

Both designs as well as styles are more important elements for a product industry as compared to service industry. In service and product industries, the most important this is to provide customers with experiences that they would consider being important for all of their lives. This will be covered in next section (Verweire and Revollo, 2009).

Counter Argument

From products and services towards experiences

Nowadays the focus of the firms is to provide the customers with unforgettable experiences. This is because the product and services are becoming common and there are not many ways to differentiate from competitors. Joseph Pine and James Gilmore explained the difference between services and product experience, that is, when a person buys service he purchases an intangible set of activities while when he buys a product he gets a tangible thing. On the other hand when a customer purchases an experience he is paying for an unforgettable event that company gives him customized for his own personal likes and dislikes (Pine and Gilmore 2001). New concepts have been incorporated into different fields over the years, like "experience branding" "experiential marketing" and "co-creation experiences" after the ideas presented by Pine and Gilmore. These new concepts are not only being practiced but are also becoming significant parts of the marketing and strategic management literature. There is no clear definition of the word experience, but, this is a certainty that experiences do not focus on functional needs rather they focus on emotional needs of the customers. According to Verweire and Revollo (2009) experiences are a result of both the products and services being bought by the customers.

Knowledge from doing something is the past is related to as the experience of an individual. Experience has two components that are external and internal. External experience is gained through amusements, surroundings, through the trading process or when the companies offer an incredible chance of shopping. However, companies gain the internal experience when they create a relationship with their customers. This relationship is based on awareness of the needs of the customers and ensuring that these needs are appropriately met. The customers are valued, which gives them a sense of closeness. According to Crawford and Matthews, the "experience attribute" gives more importance to the value that the internal experience brings. (Probably this attribute could be identified with the "connectivity" attribute, instead of "experience" attribute (Verweire and Revollo, 2009).)

Factors related to external experience are significantly considered by brands such as Ralph Lauren and Louis Vuitton because of their aim to become the product leaders in their domain. To maintain their high image in the market they make their products available only at their stores that present a peaceful and a trouble-free environment, which most other high brands ignore. Other product leaders like Barnes and Nobel, Disney, Benetton etc. follow the same idea (Verweire and Revollo, 2009).

Market orientation and competitive advantage

An advantage that helps the firm to achieve a leading position in the market, when performing better than its competitive markets, is known as the comparative advantage (Porter, 1985). An example is of the firm that can offer a product at a lower cost than that of its competitor with the same quality. When customers consider the offers of one business and ignore the competitors, the business is known to enjoy a differentiation advantage (Porter, 1985). The two types of differentiation advantage are further divided by into: firstly, it is when the firm creates its unique image in the market and it has loyal and retained customers; secondly, it is when the firm is able to produce eye-catching and modern products and is in a position to lead its competitors because of its high quality, innovative ideas and unique styles (Pine and Gilmore, 2001).

Differentiation of market and innovations can be said to be different in a few ways. Their main difference is that when a firm focuses more on research and development and is operating in a competitive market, it is able to bring new products in the market to increase its profits. This is innovation (Yiu et al., 2005). On the other hand, in market differentiation the firm is required to add a unique selling point to its product or service. Some of the popular ways to do this could be providing highest quality product, attractive packaging, easy access etc. (Yiu et al., 2005). An example of market differentiation could be a hotel using the latest technology to attract its customers. Other businesses may offer an exclusive atmosphere or new services as their unique selling points.

A straight affiliation has been developed in between customer orientation and company efficiency (consider Child et al., 2005). Under-study is the methodology by which customer orientation influences recital (Chen et al., 2003). In order to answer the query -- for what reason client and contestant acclimatization can be different in their recital effect -- this research contrasts how client and contestant acclimatization discriminatively influences a company's skill to attain trade sector along with novelty and competitive benefits. As a result of it, the company recital is affected. Since earlier studies have been successful in attaining a general view that contestant acclimatization probably steers to a financial benefit (for instance, Day and Wensley, 1988; Cavusgil et al., 2007), this investigation is basically focused on the trade sector along with novelty and competitive aspects of distinction benefits as an answer for why the client and contestant acclimatization vary in their efficiency insinuation.

Client acclimatization stresses recognizing other's technique to aim clients adequately in order to constantly produce higher worth to attracting clients. Since client's desires vary swiftly, client acclimatization necessitates an apparent realization of the financial and income activity of the aimed clients, together, now and after. Because of the fact that it emphasizes on gathering, studying, as well as spreading data regarding clients, a client-based company can expect its client's varying requirements and take proper steps by unremittingly modernizing its structure accordingly (Han et al., 1998). Furthermore, the time when the company evidently identifies an increasing distance in between its client's requirements and its trade presentations, the company can focus its efforts on narrowing the distance with the help of thriving modernizations in manufacturing and product design (Slater and Narver, 1995). The fresh experiential studies have revealed client acclimatization to be a significant factor of an association's modernization and fresh consumable's benefit (Carmeli and Tishler, 2004).

Many companies use the strategy of customer satisfaction which acts as a competitive advantage for them by providing reliable and entirely different customer oriented products. With the use of information on priorities and desire of customers, firms can provide more attractive products and come up with better plans to set elements of product promotion (Porter, 1985). In order to get long-term customer satisfaction, customer-oriented companies give priority to come up with strategies that meet requirements of target-market in a unique manner holding advantage against their competitors (Slater and Narver, 1998). Best suited marketing mix of these firms attracts their customers.

Most commonly used strategy known as competitor orientation works in a regular pattern (Narver and Slater, 1990): (1) Finding out their current and powerful competitors; (2) having information about technology being used; and (3) knowing any appealing alternative provided by their competitors to the target customers. Using competitor oriented strategy; firms have to be actively aware of all introductory steps taken by competitors and have a deep observation of short-term strengths and limitations of competitors. They should also be aware of abilities and strategies of powerful competitors that have long-term sustainability in the domain. Competitor-oriented companies, by referring to their competitors, can analyze and recognize their different advantages and disadvantages. Researchers assert in their study that internalizing a competitor's positives by imitation, or ignoring a competitor's strength by product innovation can be done by knowing one's own and competitors' strengths and weaknesses (Carmeli et al., 2005)

Dual effects of competitor-orientation have been seen to exist on the basis of creativity. One way included in this approach is to come up with continuous creative ideas and products and knowing position of competitor in the market; hence maintaining a strong competitive advantage. Another way used by these firms can also be to mimic their competitors which can lead to a decrease in innovative product costs instead of coming up with creative products. According to Barney and Hesterly's (2006) empirical research, it was found that competitor-oriented companies provide products that are similar to the competitor (me-too) and shun innovations (new-to-the-world). This disharmony between the two effects caused by competitor-orientation on the creativity, cancel out one another. And hence we obtain a relationship between competitor orientation and creativity differentiation advantage that is not significant.