Strategic Management

Jeff Dyer

Third Edition

Chapter 5

Differentiation Advantage


Professor’s Goals for this Lecture

There are many types of problems that can be solved for a company by doing a cost analysis. A cost analysis can be used to solve problems as diverse as marketing (e.g., how much to spend to acquire additional customers) or HR (how much labor costs go down per unit with increases in volume). The principle tools to be learned in this chapter are designed to help the student examine the relationship between a company’s size (measured in volumes produced or market share) and cost per unit. This is primarily reinforced by teaching students how to create a scale/experience curve (both done in the same way with “cost per unit” on the “Y” axis but the scale curve uses volume for a given year on the “X” axis whereas the experience curve uses cumulative volume on the “X” axis. The students will have the opportunity to examine the relationship between scale/experience in the following assignments:

– the homework assignment involving calculating an experience curve in semiconductors

– Fry’s Credit Card Mini-case (in lecture); considers the relationship between total number of subscribers (X axis) and cost per subscriber (Y axis)

– the Southwest Case (after lecture); considers the relationship between total passengers flown (or market share) and performance (profitability) in the industry



Differentiation means providing unique value that allows a firm to command a premium price for its product or service (relies on the consumers’ willingness to pay more).


There are four primary ways that companies differentiate their products from competitors:


Copyright ©2020 John Wiley & Sons, Inc.



Professor: Today we are going to talk about differentiation. And I think that it’s probably not surprising that differentiation is all about understanding the customer in a much deeper way than you have to if you’re pursuing a cost based advantage. But it’s really getting into the customer’s willingness to pay. And that’s really what you are trying to understand with differentiation is what are the pain points that the customers are experiencing and what are they willing to pay in order to make those pain points go away. Or you could think about it as pleasure or pain depending on how you wanted to define pain broadly you could define pleasure as part of that. There are four primary ways that you can differentiate that are described in the text. So Sam do you remember any of those?

Sam: Yes. Brand.

Professor: Brand.

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