Project Report on “Product Differentiation”

Under the supervision of

PRAGYA KASANA

Facaulty of management

Subject- Economics

Submitted by:

Preeti sinha

Mba 1st semester

Faculty of management

Poddar management and technical campus

Jaipur
 PREFACE
As a part of the MBA curriculum and in order to gain practical knowledge in the field of
Management, we are required to make a project on product differentiation.

In this project report I've included Introduction, a project on product differentiation, competitive Advatange,
product qulity differentiation strategy, and organizational performance.

Doing this project report helped us to enhance our knowledge regarding the work into the
product qulity differentiation strategy, and organizational performance.
 ACKNOWLEDGEMENT

I want to sincerely thank Dr. Sunil Kakkar, Head of the Department of Management Studies,
and pragya kasana, Faculty Member, of the Poddar Management & Technical Campus for
their assistance in helping me finish my study on the consequences of delegation of authority.

I would especially like to thank our HOD Dr. Sunil Kakkar for the time and work he put in
during the project. Your wise advice and suggestions were really helpful to me as I finished the
task. You have my eternal gratitude for this
.
I'd want to note that I completed this project entirely on my own, without help from anybody
else.

PREETI SINHA
 INDEX

1 ABSTRACT:

2 INTRODUCTION

3 LITERATURE REVIEW

4 COMPETITIVE ADVANTAGE

5 PRODUCT QUALITY

6 DIFFERENTIATION STRATEGY AND ORGANIZATIONAL PERFORMANCE

7 METHODOLOGY

8 ANALYSIS

9 SUMMARY AND RECOMMENDATIONS

10 CONCLUSION

11 REFERENCES:
 ABSTRACT:
This study aimed to analyze the strategy of product differentiation and its implications on position advantage
on customer retailer’s purchase decision either partially or simultaneously. The research method used
quantitative method with linear regression analysis three variables measured were: product differentiation
strategy and advantage position as independent variable and purchase decision as a dependent variable.
The object of this research was the customer retailer as the unit of analysis. Technique of Data collection
used saturated random sampling with 400 respondents of retailer customers in Bandung. The statistical
analysis used Classical Assumption Test and hypothesis testing test of Z, T and F with significant level (α) 5%
and calculated by statistical analysis test. The result indicated significant influence to the product
differentiation strategy, position advantage, and purchase decision. The variable of product differentiation
strategy and position's advantage influenced the purchase decision either partially or simultaneously

Keywords--- Product Differentiation Strategy, Position Advantage, and Purchase Decision

 INTRODUCTION:
The main challenge in the business world or business is not only derived from the same business
competition, but because of government policies or newcomers, business or retailer business is closely
related to the economy and economic system. Growth and development of society and the current era of
progress, business or business in retailers need to be managed effectively and efficiently in achieving its
goals. The starting point in effective management is to determine the expected goals or objectives as well as
determine the plan. Entrepreneurs need to make decisions about the planning activities or work programs /
strategic plans of business or business in retailers are made based on existing problems in meeting the needs
of the community as the business grows. In general, the goal to be achieved in a business or business in the
field of retailers is different from other businesses or businesses, depending on the vision and mission of the
business or business in the retailer. Every business has a purpose or reason for its existence. In general,
businesses or businesses in retailers are more aimed at making a profit. As a system, business or business in
the retailer is closely related to the environment. The terminology of the meaning of business or business in
the retailer as a system means as a unit consisting of subsystems, such as economic resources, activities and
environment that work together to achieve certain goals. Business management becomes increasingly
complex as the economic environment develops. Developments in industrial systems and mechanisms have
implications for business or business. The alternatives of the opportunities that are still there are many and
open to face in achieving its goals. This phenomenon is seen in the city of Bandung which is a tourist
destination for tourists who come from the city around Jabar city, in line with the business environment has
a strong dependence on economic conditions, industry and interests in other community members. Because
of that environment, business decisions are heavily influenced by the interests of parties who come from
different backgrounds (economy, social and lifestyle) are different. Basically the business is related to the
internal environment as a resource that directly affects business activities. Enterprises are also influenced by
the external environment consisting of the main stakeholders of the business or business in the retailers
(stakeholders) and the general environment that is indirectly related to the activity or affect the
performance of business or business in retailers. Another phenomenon related to retail is now seen in the
first curve of 2017 experienced a decline. Statistics show in May 2016 the retail sector grew 11.1%. That
shows where the growth of the retail industry from day to day even from month to month does not look
satisfactory growth, and decreased, more or less for April only grew 4.1%, but in May fell 3.6%. This is based
on the existing retailers in Indonesia, such as minimarket, supermaret, hypermarket, departement store and
wholesale. This phenomenon indicates the attractiveness of retail that has not been optimal so as to create a
mismatch between consumers of retail business, the business to encapsulate the activities of retail
customers are not only able to facilitate the presence of retail stores in an area but the most important
factor is how to make a difference, excellence with the best. The linkage of a particular group of individuals
or individuals as more demanding, aggressive, and easily dismayed consumers will provide a problem if the
form of presentation, appeal and service we provide is perceived as insufficient in this regard which should
be anticipated in such a way as to minimize it and not created disappointment and the gap between
consumers with retail stores are prolonged especially the problem of consumer needs / interests while
shopping, and can be resolved properly. What retailers do to customers are basically trying to give the
impression of discrimination to consumers, maintaining customers, building an adequate edge. If these
things can already be achieved by the retail business, the success of business and victory in the competition
will be obtained.

LITERATURE REVIEW
In today‘s rapidly changing economic and business environments, organizations compete for
customers, revenue, market share with products and services that meet customer’s needs.
Global competition has brought about technological changes whereby customers are
demanding for superior quality products/services with lower prices. More so, this increased
rate of global competition has brought about reduction in product life cycle. This has led
to much emphasis being placed on organizational competencies and creation of competitive
advantage which is believed would give them an edge over other competitors. Though there
are many objectives an organization would want to achieve these days, the two major ones
are: (i). to achieve a competitive advantage position and (ii). enhance their organization’s
performance in relation to that of their competitors (Raduan Jegak, Haslinda, and Alimin
2009). It is therefore, necessary for business organizations to understand the relationship
between the organization’s internal strengths and weaknesses, as well as the potential effects
on their organization’s competitive advantage and performance. It is also necessary that the
organization makes a choice about the type of competitive advantage it seeks to attain and
the scope within which it will attain it.
The generic strategies as developed by Porte (1980; 1985) for achieving a competitive
advantage position by an organization are: product differentiation and cost leadership.
Product differentiation being the most commonly used one of these two strategic typologies
(Spencer, Joiner, and Salmon, 2009). A differentiation strategy involves the firm creating a
product/service, which is considered unique in some aspect that the customer values because
the customer’s needs are satisfied. On the other hand, cost leadership emphasizes low cost
relative to that of the competitors (Porter, 1980; 1985). He argued that cost leadership and
differentiation strategies are mutually exclusive. Recent literatures and research studies have
notwithstanding, questioned this idea recognizing the fact that organizations may pursue
elements of both types of strategy (Chenhall and Langfield- Smith, 1998b). Nevertheless,
past researches have shown that a number of the manufacturing organizations view the
differentiation strategy as a more important and distinct means to achieve competitive
advantage in constrict to a low cost strategy (Kotha and Orne, 1989; Baines and Langfield-
Smith, 2003).

However, an alternative to this framework is the resource-based view of a firm which

argues that the source of sustained competitive advantage is to focus on superior resources
of a firm (Barney 1991). Furthermore, Barney ties competitive advantage to performance,
arguing that “a firm obtains above-normal performance when it generates greater-than-
expected value from the resources it employs (Barney, 2002). An organization’s resources
according to Barney include all assets, capabilities, organizational processes, firm conceive of
and implement strategies that improve its efficiency (doing things right) and effectiveness
(doing the right things). In traditional strategic analysis language, organization’s resources are
strengths that organizations can use to conceive of and implement their strategies. These
resources are broadly categorized into
1. Physical capital resources
2. Human capital resources and
3. Organizational capital resources.
Competitive advantage results from and is associated with a long list of
contributing factors. These factors include operational efficiencies, mergers,
acquisitions, levels of diversification, types of diversification, organizational
structures, top management team composition and style, human resource
management, manipulation of the political and/or social influences intruding
upon the market, conformity to various interpretations of socially responsible
behaviors, international or cross-cultural activities of expansion and
adaptation, and various other organizational and/or industry level phenomena
(Raduan et al., 2009; Ma, 1999a;1999b).
More recently however, the process of globalization has been boosted
by the economic activities of multinational corporations (MNCs) such as
Toyota, Sony, Coca-Cola, etc. These MNCs for long period of time have
achieved and sustained their competitive advantage via various strategic
management practices and approaches (Raduan et al., 2009). Due to the global
outreach and impact of these MNCs, it is vital that they understand the degree
of relationship between their organizational resources, their competitive
advantage and the level of their performance. This is because as far as the
strategic management of organizations is concerned, the knowledge of the
significant attributes of organizational resources and how to generate
competitive advantage and performance alone are not sufficient (Raduan et
al., 2009).

There are three main features of core capability:

1. The core capability has the full user value, able to create value and
reduce costs.
2. The core capability is unique, it is difficult to imitate by
competitors.
3. The core capability must have the ability to provide support for
the organization to access a number of markets.
The major differences between the two theories are as follows:
1. The capability theory is of the view that the core capability is the
source of organization sustainable competitive advantage, while
the resources based theory believes that the strategic resource is
the source of sustainable competitive advantage.
2. The capability theory takes the ability of resources disposition and
conformity as part of the core capability, while resource - based
theory take the organization capability as part of organization’s
resources.
3. The capability theory emphasizes that the organization develop
corporate strategy around core capability, while the resource
based theory stresses the need for resource-based competitive
strategies.
Barney (1991) concludes that resources and capabilities of firms are keys to creating
sustained competitive advantage and achieving superior performance.

COMPETITIVE ADVANTAGE
A variety of definitions and views on competitive advantage have been
expounded by various scholars. Porter (1980) says “competitive advantage is
at the heart of a firm’s performance in competitive markets” thus
“competitive advantage grows fundamentally out of value a firm is able to
create for its buyers that exceeds the firm’s cost of creating it.” Barney (2002)
says that “a firm experiences competitive advantages when its actions in an
industry or market create economic value and when few competing firms are
engaging in similar actions.”
Besanko, Dranove, and Shanley (2000) say “when a firm earns a higher rate of economic
profit than the average rate of economic profit of other firms competing within the same
market, the firm has a competitive advantage in that market.” Saloner, Shepard and Podolny
(2001) say that “most forms of competitive advantage mean either that a firm can produce
some service or product that its customers value than those produced by competitors or
that it can produce its service or product at a lower cost than its competitors.” Dierickx and
Cool (1989) have echoed Barney (1986]) in arguing that competitive advantage is not
obtainable from freely tradeable assets.

Accordingly, there are three sources of competitive advantage:

1. Cost efficiencies that make more efficient use of the firm’s assets
and supplier inputs or that lower supplier cost;
2. Product differentiation to raise customer benefits; and
3. Transaction innovations that lower the costs of transactions or that
create new combinations of customers and suppliers.
Porter is of the opinion that a firm being able to produce a product/service at a lower
cost compared to the competitors is one-way to competitive advantage. This is often achieved
by large scale organizations that develop efficiency by reason of their repetitive experience of
the tasks involved or using their power to leverage lower costs. The other two sources of
competitive advantage stems from the value seen by customers who either see specific
attractive elements in the offering (differentiation) or feel that all their needs are being met in
the best way by that competitor’s offering (focus) (Henderson, 2011). It is important that
customers always perceive a consistent difference between a firms products/services and
that of its competitors as competitive advantage is only meaningful when it relates to an
attribute valued by the market.

PRODUCT QUALITY
The issues of product quality have been studied by many scholars (Ertekin and Aydin,
2010; Baker, 1995; Sumutka and Neve, 2011; Flynn, Schroeder, and Sakakibara, 1994; Hitt and
Hoskisson, 1997). In the 1970s and early 1980s, one of the major features of an industrial
economy was the increased emphasis been placed on internal quality of execution, rather
than price, as a major competitive tool. ‘Quality’ was viewed as a key market differentiator,
resulting in many organizations defining and improving processes, adopting and
implementing total quality management systems, and attaining quality standard
accreditation. Recently however, interest has been growing in the application of advanced
process monitoring and control strategies to improve manufacturing operations. Quality, as a
competitive advantage tool is seen as one of the fundamental ways in which individual
businesses can successfully compete in the global marketplace. The choice of what product
to purchase in most consumer markets is not majorly determined by the lowest price, a
product’s quality could be a determining factor (Matsa, 2009). Product quality can have large
effects on demand and consumer welfare. Not only has product quality been recognized as a
strategic organizational priority, it is also an important element of competition in a wide
range of markets and industries. Strategic focus on quality has been widely considered as a
fundamental aspect of manufacturing strategy in many firms. This is likely to result in
improvements in product demand thereby facilitating the building and maintenance of a
competitive position (Daniel and Reitsperger 1991).
Product Design and Development

Product design is defined as the totality of features that affect how a

product looks, feels, and functions. A well-designed product offers both
functional and aesthetic benefits to consumers, which could become an
important source of differentiation (Koter and Keller 2011). Thus, a product’s
design will always aid to determine a consumer’s choice of purchase amongst
products of same brands and categories. A well-designed product can also be a
point-of-difference in the marketplace aiding consumer acceptance through its
ease of use, durability, reliability, or packaging; therefore, serve as a source of
competitive advantage. Irrespective of the design, it is important that the
product meets the consumers’ definition of a basic product. Once that is
achieved, design can be a powerful marketing asset for the organization
Porter (1985) considers innovation as a critical competitive advantage to success. An
organization can be in a secured position relative to its competitors if it has an innovative
product (Ven de Ven, 1986). Nord and Tucker (1987) identified the routine innovation and
radical innovation in product development. Routine innovation means the introduction of
something to organization that is similar to previous ones, while radical innovation means
introducing something that is unprecedented to organization. The impact of innovation on
firm’s overall performance is demonstrated by a substantial body of literatures. Innovation is
the multi- stage process whereby organizations transform ideas into improved products,
service or processes, in order to advance, compete and differentiate themselves successfully
in their marketplace (Baregheh, Rowley and Sambrool, 2009).
Attaining a position of competitive advantage and enhancing a firm's performance
relative to its competitors are two of the main objectives that business organizations should
strive to achieve. In order to attain a competitive advantage that can not only match that of
their business rivals' but also surpass industrial performance averages, business organizations
must first comprehend the relationship between the internal strengths and weaknesses of
their organization, as well as the potential effects on their firm's competitive advantage and
performance. International businesses and multinational corporations (MNCs) such as Sony,
Toyota and Intel have achieved and sustained their longstanding competitive advantage
through various strategic management practices. In the present era of globalization,
industries and enterprises compete and confront each other on the global scale. As such,
Malaysian business enterprises, particularly manufacturers, have much to learn from the
strategic management practices of the so-called inter- and multinational corporate "giants"
regarding sustaining a competitive advantage.
Researchers have found that there is a significant relationship between competitive
advantage and the sales-based performance of organizations, when sales-based performance
was measured by the level of sales revenue, profitability, return on investments, productivity,
product added value, market share and product growth (Wang & Lo, 2003). In addition, other
studies have also further illustrated a significant relationship between competitive advantage
and the organizational-based performance of organizations, when organizational-based
performance was measured by the emphasis on efficient organizational internal processes,
customer satisfaction, employee development and job satisfaction (Wang & Lo, 2003).
Competitive advantage and organizational performance
As noted earlier by Fahy (2000), the vast majority of contributions to competitive advantage,
especially within the resource based view, have been of a conceptual rather than an
empirical in nature, with the result that many of its fundamental tenets still remain to be
validated in the field. However, from the level of empirical research, Strandholm & Kumar
(2003) insist that there is a positive relationship between external environmental analysis
style and overall organizational performance and the ability to gain a competitive advantage.
Flatt and Kowalczyk (2008) were also of the opinion that organizational culture is one
intangible asset that can help organizations create a competitive strategic advantage and
enhance financial performance. The work of Vorhies and Morgan (2005) suggest that the use
of proper marketing benchmark tools to benchmark marketing capabilities provides a key
learning mechanism for delivering sustainable advantage.
In addition, Chan, Shaffer and Snape (2004) brought forth and tested a dynamic
model of co-specialized resources that explained the direct effect of HR practices,
differentiation strategy and corporate culture on organizational performance. The findings
proved partial support for this type of culture performance relationship. Siaw and Yu (2004)
claim that the internet as a commercial technology has changed the rules of competition in
the banking industry. They suggests that likely emergence of new small banks into the market
will use this capable tool to compete with existing large international banks. They finally
concluded that the internet has strongly affected the competitive landscape of the banking
industry by creating competitive advantages, so banks can rely on such technology to
compete with their rivals.

DIFFERENTIATION STRATEGY AND ORGANIZATIONAL

PERFORMANCE
Generally speaking, only a few numbers of researches have investigated direct
relationship between differentiation strategy and organizational performance. More so, a
sizeable number of those researches were conducted in the developed countries.
Nevertheless, a number of past research studies that have investigated the relationship
between the differentiation strategy and organizational performance are as follows:
The study findings of Acquaah and Yasai-Ardekani (2008) show the viability and
profitability of implementing cost leadership, differentiation, and the combination of the
singular strategies. Nevertheless,, the incremental performance benefits to firms
implementing a combination strategy do not significantly differ from the performance of firms
implementing only the differentiation strategy. In addition, firms that implement a coherent
competitive strategy (combination, cost-leadership, or differentiation) tend to gain
considerable incremental performance benefits.
Also, the study findings of Amoako-Gyampah and Acquaah (2008) who examined the
relationship between manufacturing strategy and competitive strategy and their influence on
firm performance indicate that there is a positive relationship between competitive strategy
and the manufacturing strategies of cost, delivery, flexibility, and quality. In addition, the
result shows that quality is the only manufacturing strategy component that influences
performance indirectly.

METHODOLOGY

The survey research was adopted for this research work because of the nature of the
respondents. This entailed the administering of questionnaires to the chosen sample. The
population of the respondents was rather large, made up of all customers/consumers of the
products of Unilever Nigeria Plc located in Ota, Ogun State. Since everyone in the
population cannot be given questionnaire to fill, therefore, a sample of the population was
used as respondents for the study. This study adopted a survey research design, whereby it
focused on the customers of Unilever Nigeria Plc, manufacturers of household/personal care
products. Since product quality is a major determinant variable in the differentiation of
products, it was therefore important to test the significance of product quality as it relates to
the customers/consumers of the products. The customers that bought or use the product
remain a key factor in determining a product’s quality and differentiating features. They can
judge and measure its quality and effectiveness by comparing it with the competitor’s
products.
Data for this study was collected from a sample of customers/consumers of Unilever
Nigeria Plc to determine the relationship between product differentiation and organizational
performance. Items relevant under the research design are; study population, sample and
sampling technique, data collection instrument. All these items representing the research
design provides a clear view of how the data required for the study are collected and collated,
and how the analysis was performed so as to yield a significantly reliable and valid result.
The study population included all customers of Unilever Nigeria Plc, located in Ota,
Ogun state. The study population had to meet the following criteria:
1. They must be 18 years and above as at the time of conducting
this survey
2. They must be able to read and write English, so as to be able
them to answer the questionnaire.
3. They must have purchased/consumed any Unilever products
within the last 3 months preceding the period of this study.
The study population was taken majorly from schools, banks, shopping malls and
markets located within Ota, Ogun State. The sample size used in this study was 323
respondents were selected based on the simple random sampling technique, so as to enable
every element of the sampling frame have equal chances of participating in the study.
 Hypotheses

It should be noted however, that although all these variables exist in literatures, this study
adopts the following variables to measure product differentiation: higher product quality,
product design, unique product features and new product innovation. Organizational
performance was considered along the dimensions of sales growth and customer satisfaction.
As such data analysis was designed to answer the following research questions which
ultimately were used to determine the impact product differentiation as a tool of competitive
advantage on the organizational performance of Unilever Nigeria Plc. The following research
questions and hypothesis were formulated:

ANALYSIS

All hypotheses were tested and analyzed using simple linear regression analysis.
H01 – There is no relationship between higher product quality of an organization and its
sales growth.
Hypothesis one shows how much of the variance in the dependent variable (sales
growth) is explained by the model, which is higher product quality. The values 0.21 and 0.39
in the R squared column are expressed in percentage. This means that the model (higher
product quality) explains between 21% and 39% variations in the dependent variable (sales
growth). With an F value of 6.623 and a significance level 0.02, there is a significant
relationship between higher product quality and the sales growth of an organization,
therefore, the null hypothesis (H01) rejected.
H02 - There is no relationship between new product innovation of an organization and
its customer satisfaction.

SUMMARY AND RECOMMENDATIONS

This research study was designed to examine the influence of product differentiation
as a tool of competitive advantage on the organizational performance of manufacturing
companies, using Unilever Nigeria Plc as a case study. To investigate this relationship, 323
customers/consumers of the organization were surveyed. For clear analysis, the study centers
on two broad variables; the dependent variable and the independent variable. The
dependent variable is taken as organizational performance which was further broken into
sub-variables to include customer satisfaction and sales growth. The independent variable
was product differentiation which was operationalized in terms of higher product quality, new
product innovation, product design and unique product features.
The hypotheses were tested using the Regression Analysis with interpretation
provided. The result of the Regression analysis indicated that product differentiation as a tool
of competitive advantage has a positive and significant influence organizational performance
of manufacturing companies in Nigeria. The result supports some previous research results
(for example, Mosakowski 1993; Allen and Helms 2002), which indicated a positive and
significant relationship between product differentiation strategy and organizational
performance.
First, in response to the dynamic nature of the business environment and the ever changing
needs of customers, it is safe to suggest that executive management needs to make sure that
they provide adequate satisfaction to their customers. In other words, executive management
should pay more attention to customer satisfaction, since their survival in this dynamic
environment is highly dependent on their ability to retain a larger customer base compared
to their competitors. In addition, executive management should put additional emphasis and
pay more attention to product differentiation as it is an important instrument for
achieving competitive advantage which leads to greater organizational performance.
Furthermore, product differentiation appears as a critical driver for organizational
performance, which could perform the role of a bridge that links the positive influence of
customer satisfaction to organizational performance.
Therefore, executive management ought to focus and invest more on product
differentiation as it could be used as a major competitive advantage tool against competitors
in the industry and it is capable of guaranteeing the long term survival of the organization

CONCLUSION
In conclusion, from the research study, it can be established that however little the
significance product differentiation holds in relation with organizational performance, the fact
remains that there is a positive relationship between the variables. This means that
manufacturing organizations must pay greater attention to the products the manufacture in
terms of quality design, innovations and unique features.
Finally, firms in the manufacturing sector face domestic and international competition
in addition to rapid shifts in customer demands whereby many manufacturing firms have
come to realize that to remain viable, a strategy of product differentiation may be a more
viable option than strategies based on efficiency and price (Spencer, Joiner and Salmon 2009).
This research study further demonstrates that product differentiation could be used as a tool
for achieving competitive advantage and enhancing greater organizational performance.

REFERENCES:
Abu Aliqah, K. M. (2012). Differentiation and Organizational Performance:
Empirical Evidence from Jordanian Companies.

Acquaah, M. and Yasai-Ardekani, M. (2008). Does the implementation of a combination

competitive strategy yield incremental performance benefits? A new perspective from a
transition economy in Sub-Saharan Africa. Journal of Business Research,