Differentiation Strategy: Staying Ahead of Competition in Business

This essay discusses the importance of differentiation strategies for organizations, particularly in competitive industries like the automotive sector, using Tesla as a key example. It examines Porter's generic strategies, highlighting differentiation as a suitable approach for gaining a competitive edge. The essay explores various methods of differentiation, including product, service, and channel differentiation, and evaluates the applicability of these strategies using Porter's Five Forces model and the BCG matrix. It emphasizes the need for companies to understand their market, customer needs, and competitive forces to effectively implement differentiation strategies and maintain a competitive advantage, addressing issues like high competition, the threat of substitutes, and the importance of innovation and market segmentation.

STAYING AHEAD OF
COMPETITION RIVALRY
USING DIFFERENTIATION

Essay: Staying ahead of competition rivalry using differentiation
Discussion theme
Competition in business world can be fierce especially in Automotive industry which is
fast moving industry. Due to this it becomes extremely important for organizations to adopt an
appropriate strategy for gaining competitive advantage (Habiger and Kopel, 2020). There are
various kinds of strategies that can be adopted by organizations for gaining competitive
advantage. But for that it is further important for organizations to study current competition in
the market, products and services provided by their competitors, quality, pricing strategy adopted
by them, unique features provided by them, needs and requirements of customers etc.
In order to stay ahead in competitive environment, it is extremely important for
organizations like Tesla to known their current competition, services provided by them, unique
services or features they have made available for customers (Kankam-Kwarteng, Osman and
Acheampong, 2020). Not only this, they also need to focus upon identifying needs and
requirement of their target customers. This will directly help them in understanding factors on
the basis of which they will be required to develop unique strategy for gaining competitive
advantage.
Tesla is a well- known automotive industry who is well-known for their high- end service
and for their open- source patent program (Hoeft, 2021). Tesla always focuses upon introducing
unique features within their end products for attracting a greater number of customers. There are
various kinds of strategies that can be adopted by them for gaining competitive advantage but
most commonly and suitable strategies are Porters generic strategies. Porters had developed for
generic strategies that can be used and applied by any organization of any sector. These
strategies are: cost focus, cost leadership and differentiation. Out of all the three strategies
differentiation strategy is one of the most suitable and appropriate strategy that can be used by
Tesla for staying ahead of competition rivalry. In this essay explanation of ways in which
differentiation strategy can be selected by organization staying ahead in competition will be
explained by explaining differentiation theme in appropriate manner.
Differentiation strategy is a kind of strategy that can be used by organizations for being
unique in the market in order to become wide and valued buyers (Lin and Lin, 2019). This
strategy can be used by organizations for being most valued by their buyers. In this strategy
organizations can focus upon differentiating their products and services from their competitors.
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This strategy can be used by organizations for diversifying their products or services with the
help of introduction of unique features within their current or existing products or services. Tesla
is one of those organizations whose primary focus has always been uniqueness, innovation for
differentiating their products and services from other organizations (Lin and Lin, 2019).
Adoption of this differentiation strategy is beneficial for Tesla for gaining competitive advantage
and for staying ahead in the competition. Not only this, focusing upon differentiation strategy
can further help Tesla in staying ahead in upcoming competition as well.
Various researches in this sector has been carried out for explanation of ways in which
differentiation theme can be used by companies for remaining competition in existing
competitive market. According to the view of Semuel, Siagian and Octavia, (2017)
differentiation strategy allows business organizations in providing superior value to their
customers at an affordable price by creating a win-win scenario that can boost overall
profitability and viability of business. There are six different ways in which companies can
different their products and services such as: differentiating in terms of cost, leadership, services,
product, reputation/ image, channel, and relationship. Product differentiation can be provided by
introducing new features, enhancing performance, increasing reliability etc. Service
differentiation can be focused upon by introducing new features in terms of services such as:
making ordering of products and services much easier, enhancing delivery, and providing many
other kinds of miscellaneous services. Channel differentiation can be focused upon by covering
maximum types of channels for reaching target customers and enhancing overall performance.
Whereas, as per the view of Subrahmanyam and Azad, (2019) differentiation strategy is
only of two types that can be focused upon by organizations for gaining competitive advantage.
First is differentiation leadership and second is focused differentiation. First type of
differentiation strategy is used by business organizations for differentiating their products and
services on the basis of introduction of new and unique features from their competitors’ products
and services. This can be done by evaluating one’s own existing products and services,
competitors’ products and services portfolio, customer needs and requirements, cost of resources
etc. on the other hand focused differentiation strategy can be used by organizations by
differentiating products and services by focusing upon cost because many times differentiating
products on the basis of cost directly helps in gaining competitive advantage. Both the strategies
can directly help in gaining competitive advantage and staying ahead in the market from both
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existing and upcoming competitors. But for this it is important for companies like Tesla to
identify type of differentiation strategy that can be adopted by companies for gaining competitive
advantage.
Critical evaluation of theories
According to the view of Ze and et. al., (2018) it has been critically evaluated that
differentiation strategy can directly help in bringing improvement within business performance
and differentiation strategy is applied in appropriate activity then it can directly help in achieving
or gaining competitive advantage. But it is extremely important to understand how and in which
ways it is required to be used as there are many ways in which differentiation strategy can be
applied by organizations like Tesla. This is because in order to apply differentiation strategy it is
important to gain understanding of current market in which organization operate, needs and
requirement of customers (Lin and Lin, 2019). This will directly help Tesla in understanding
ways in which differentiation strategy is required to be applied. It can further be said that Tesla
needs to understand current market in which they operate, competitors’ products and services,
needs and requirements of customers. In other words, it is important to for Tesla to understand
the market in which they operate (Hoeft, 2021). For this they can use Porter’s fiver force model.
This model directly helps in identifying and analysing five main competitive forces for
understanding competitive environment in which they operate so that they can select appropriate
differentiation strategy.
Porters five main forces analysis for Tesla can be analysed by applying all the forces.
Competition in the industry is the first force of the theory. Competition for Tesla in the industry
in which they operate is high due to which it becomes extremely important for them to introduce
new features within their existing products and services. For this they can focus upon adopting
cost differentiation or product differentiation strategy. New entrant in the industry is threat force
off the theory. Threat of new entrant for Tesla is low as new entrant require huge amount of
funds due to which it becomes difficult for them to enter into the market (Lin and Lin, 2019). As
a result, Tesla can focus upon adopting channel differentiation, product or cost differentiation
strategy for staying ahead of upcoming competition of new entrant. Threat/Power of suppliers
force is moderate for Tesla are there are moderate number of suppliers in the market who can
provide high quality required raw materials in lower price. As a result, Tesla can focus upon
adopting product or service differentiation strategy for enhancing their sales and profit.
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Power of customers force is also a threat for Tesla because today due to existing
competition and advancement in technology needs and requirements of customers is changing
(Almenhali and et.al., 2021). Due to this, it becomes extremely important for organizations like
Tesla to understand needs and requirements of customers and adopt appropriate differentiation
strategy accordingly that can directly help them in gaining competitive advantage. Another force
is Threat of substitute products: Threat of substitutes is also a threat for Tesla which have
moderate impact on the business. Although switching costs are a strong force, but the substitutes
are available on a moderate level (Salgueiro, 2017). The performances of substitutes are not as
strong which limits the impact of substitutes on Tesla.
Additionally, the BCG matrix can also be applied to Tesla through which Tesla can
analyze and plan its products and services. It can also help the company to identify problems and
the opportunities where it can plan its growth (Hersen, Silva and Timofeiczyk, 2018). Stars of
the company are the products which generates higher sales for the company. Company's financial
units and brand strategic business units are its Stars of BCG matrix. However, the company can
vertically integrate through acquisition of other companies in its supply chain. Cash cow Tesla as
explained in the BCG matrix, is its supplier management unit. This unit of Tesla has helped it in
generating huge profits for years. In this unit the company have a high market share but the
growth of overall market is low as the companies prefer managing their suppliers by themselves
instead of hiring other companies to do so. International food strategic business unit is also a cow
of Tesla. The changes in the preferences of consumers has declined the growth rate of this
market in industry.
The local food unit and confectionery strategic business unit are question mark units for
Tesla. These units have high growth rate as the customer's preferences towards local foods have
grown and the unit has been growing for years. But the company has a low market share in this
unit (Baucells and Maiden, 2019). The low sales in these units are because of poor distribution of
products in this unit. Dogs unit of Tesla includes its plastic bag unit and synthetic fibre business
unit. These business units are in a loss of many years as identified by the companies itself. The
company launched these products with an assumption of growth in the future. However, the units
have been constantly declining since then.
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Justification of importance of problem or issues.
Through the application of porter's five forces model and the BCG matrix various
problems were identified. However, solutions to some problems were still unclear even after the
application of theories. Through the application of Porter's five forces model, the problem of
high competition and importance of differentiation were realized. Solutions to these problems are
very important, because if the issue of competition is not considered then the company can lack
behind the competitors. It can hinder the growth of company and its expansion as well.
Differentiation strategy implementation is important because if the competition becomes intense
then the customers will have a number of options to chose from (Guță, 2017). This will make the
availability of substitute easy which means the customers will be more likely to shift to other
companies. Company can lose its market share in the industry. Differentiation can provide
competitive edge to the company through which it can retain its existing customers and attract
new customers as well. Tesla invests in its research and development a considerable amount but
it is not enough in the present competitive environment. It needs to provide innovative features in
its products to gain competitive advantages (Tesla (TSLA), 2021).
It was also identified that the company need to enhance its distribution channels and
segmenting to tap the areas which it did not reach earlier. It was identified that Tesla has poor
distribution channels and segmentations which targets only some specific areas only. The
company sells its products only in the upper and premium segments of the company. It does not
target lower upper class segment of customers. It is important to address this issue as most of the
population consists of lower upper class people. They have high potential for buying. If the
company introduces any products which caters to this segment of the population, it can help the
company to grow and expand. Having a distribution channel is very important because
distribution channels are the point of sales for the company. Distribution channels makes the
availability of the products more to the consumers (Li, 2019). But as identified Tesla have poor
distribution channel because it sells all the products through direct sales channels. The
consumers have to book in advance and make advance payments then only they are able to buy
the products. This makes the availability of products to the consumers difficult and low. It can
cause the consumers to shift to substitutes.
Through the BCG matrix some problems were also realized. It was identified that the
company is still investing in some units which are considered as the dogs of BCG matrix. These
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units do not provide any benefits and does not have any potential growth in the markets. Tesla's
plastic bags unit and synthetic fibre unit are its dog units as explained in the BCG matrix. These
units do not generate much profits for the company, nor they have high growth potential. So its
was realized that the company should stop the investments in these units and then diversify that
investment in other areas (Mohajan, 2017). Tesla's supplier management unit and strategic
management unit were identified as they have high share of the company, but they do not have
potential growth in the market. These segments should be kept until they generate profits.
However, once it is realized that these units demand more investments than they are generating
profits, then it should diversify the investment in other areas which have high growth potential.
Through the BCG matrix it was also identified that Tesla should stop its investment in its
supplier management business unit and invest more in its strategic business unit because it has
high growth potential. The companies now prefer to select suppliers by themselves only. So it
limits the scope of growth for supplier management unit (Baucells and Maiden, 2019). It should
invest enough in international food unit because even though this unit has low market share and
mediocre growth potential but, it is still generating profits for the company. So it should invest in
this unit as much as it is generating revenue.
BCG matrix is justifiable in this case as, it can help the company to identify the business
units which provide benefits and which units are not profitable. It can also help the company to
identify its problematic units and appropriate actions for the same. A BCG matrix can provide a
high level way to realize opportunities for each product of the product portfolio (Chiu and Lin,
2019). It can also enable the companies like Tesla to re-think about its allocation of scarce
resource to the product portfolio to increase the profits for a long term. BCG matrix is also
justified because it can show the company, if its portfolio is balanced or not and the product units
which it should eliminate.
Evidence to support argument or discussion
Secondary data refers to the data which is collected by some other user than the primary
user. Researcher uses this data which was already collected by someone else. Some common
sources of secondary data includes organized records, information collected by government
departments and censuses.
As per the views of Desai (2019), it was analysed that Porters five models can help the
companies to access its attractiveness and trends which can affect the industry competition and
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analysing in which industries a company should compete in. it can also provide the companies a
framework through which they can analyze hoe they can position themselves in the industries to
get a competitive edge over the competitors. However, Dombrowski, Krenkel and Wullbrandt
(2018), suggested that Porters five forces model provides only a picture of the internal
environment of the company and does not consider the non-market forces. But it can be very
difficult for the companies to define the whole industry using this method. Also, the pace of
change is very rapid which means the theory is very likely to become non applicable.
According to Bolisani and Bratianu, (2018), Porters generic strategies provides various
methods through which a company can build strong relationships within its each target market. It
can also improve the pricing structure and bring expertise into the products of a company. The
strategies in this model can allow it to identify its future customers specificity and it also limits
the competition. On the contrary Hole, Snehal and Bhaskar (2019), suggested that, Porters
generic strategies can limit the initial demand for a particular product can also limit its future
growth. Porters strategies does not help the companies to eliminate the threat of disruptors and
becomes too specific for the market.
Zin, Bombana and Barcellos, 2018 states that, A BCG matrix is framework through
which companies can remove the weak areas of business and identify new opportunities. It can
be very beneficial for the mangers of a firm to evaluate balance between the product portfolio.
The model is very simple and easy to use by the company for planning and deciding their future
course of actions. The matrix is applicable to large firms also who seek volume and experienced
effects in the industry. Similarly, Rogowski and Dalichau (2020), criticized that, A BCG matrix
neglects the effect such as synergies between the various business units. As per the author, high
market shares and market growth are not the exclusive methods for success and indicators for
attractiveness of an industry. A business with low market share can be success and profitable too
which is totally neglected by the BCG Matrix.
The Porter's generic strategic model provides the company strategies through which a
company can create competitive advantages. Similarly, in the group report it was mentioned that
the company can exploit the differentiation advantage of value added activities. Through this,
Tesla can create low production and manufacturing costs which will help to achieve scalability
while profitability is being increased. This creates cost leadership of the company in industry.
This competitive advantage can help the company to scale up its production volume as well as
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meet the demands of consumers while reducing the competition threats. The reasons for the
competitive advantage achieved by Tesla include the company's ability to influence demands as
it has the adequate knowledge as mentioned in the group report.
In the Porter's five forces theory, a company or industry's attractiveness and
competitiveness is analysed through various factors (Martin, 2017). From the group report it was
analysed that, competitive advantages of high profitability and low production costs can help
Tesla to yield high margins to negotiate with its suppliers. It will also reduce the power of
consumers as there will be few or no comparable alternatives available who sell the products at
the same rate as Tesla does. It eliminates the threat of substitutes. This will also provide a
competitive edge to the company over the major competitors. The company will achieve cost
leadership because it has high revenue as mentioned in the group report. This will reduce the
threat of new entries in the same business as the competitive advantages will create more and
unique barriers. Through this strategic advantage Tesla can fight off all the five elements or
forces of Porter's Five forces theory. The reasons Tesla has been able to fight off all the forces is
that the company can create a competitive edge over its competitors.
Comparison of findings to established theories from themes
Porter's five forces model helped the companies such as Tesla in understanding the
competitiveness of business environment. It provides the company a framework of five forces
which helps it to determine competitive attractiveness and competitive intensity in terms of
profitability. The five forces include threats of substitutes, threat of rivals, threats of new entries,
bargaining power of suppliers and the bargaining power of customers (Pádraig, 2017). Through
the application of Porter's five forces model, the company can identify the areas through which it
can gain competitive advantage. It can help the company to analyze the impact of external forces
on the internal environment. This can also help to identify the company to plan, deal with
suppliers and customers and to prepared for competition. However, according to this theory no
industry is perfect thus, they cannot do business. Another problem Tesco can face through
applying this theory is that it will consider only the five factors it provides and ignores all the
other factors which might have the potential to affect the company.
Additionally, Porters generic strategies provides a framework to the company through
which it can gain competitive advantages. It provides the methods to company through which it
can gain an edge over the competitors to generate maximum sales and eliminate competition
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(Cavaleri and Shabana, 2018). It provides three strategies through which Tesla can gain
competitive edge. These include cost leadership, differentiation and focus strategies. When the
Porter generic strategy theory was applied in Tesla, it was identified that out off all thee
strategies, differentiation was most suitable for the company to stay ahead of its competitors.
Tesla can use this strategy to be unique and distinct in the market and gain valued buyers. It can
be applied by the company to create unique features in the existing products too. However, there
are many ways a differentiation strategy can be applied (Bolisani and Bratianu, 2018). For the
companies to apply differentiation, they need to have strong knowledge about the markets, which
can lead to additional costs and time consumption.
BCG matrix is a growth share matrix or management portfolio through which the
companies such as Tesla can decide how they can prioritize their different business units. The
framework provides four quadrants in which each quadrant has unique symbols i.e. cash cows,
dogs, stars and question marks (Dana, L.P. and et.al., 2019). These symbols can applied to
different business units of the company for deciding on which resources and capabilities the
company needs to focus and which units to cut for eliminating losses. If Tesla applies this theory
in its business, it can help it to predict the actions for the future through which it can decide its
management strategy. It can also help the managers of Tesla to evaluate balance in its current
portfolio of the products. Through application of this strategy, company can can enhance its
market shares. However, this theory does not provide clear picture of the markets associated with
the products. The major problem with this theory is that it works on the basis of an assumption
that each business unit is independent of the other units (Schawel and Billing, 2018).
It was analysed that through the application of BCG matrix, Tesla was able to identify the
product portfolio i.e. the products whose market share should be increased and those whose
market share should be eliminated and whose market share should be reduced. But in the finding
its was identified that the BCG matrix does not provide clear picture of the markets whose
products are being analysed (Hossain and Kader, 2020). This reduces the contribution of theory
to the company. The current BCG theory must be improved so that they can accommodate the
present findings. It will help the company in analysing clear set of actions which it can take to
improve its product portfolio. If the theories are improved, then only it will be able to provide a
clear understanding of the products and markets in which Tesla and other companies as Tesla
operates in. There is a huge consistency in the theory and the findings as the theories can be
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modified and improved which will fulfil the demands of current findings. There is a scope that
the theory of BCG matrix can be improved i.e. provides clear picture of the markets. BCG theory
can indicate the markets instead of product portfolio through which markets and the products can
be understood independently. This makes the consistency of the theories and finding more.
From the above discussion it can be concluded that the Competition in automotive is
intense which suggests that the companies such as Tesla to adopt new strategies for the survival
and growth. Tesla can adopt various strategies through which it can gain a competitive
advantage. Tesla can apply Porters generic strategies to formulate competitive advantages in the
industry. However, it this theory needs an intense knowledge of the marker to create competitive
advantages. Porters five force model is also applied in the company to identify its
competitiveness in the market and with the help of BCG matrix the product portfolio was
analysed. However various problems were identified such as competition and unclear markets.
These theories can be very beneficial for the company if few improvements are also implied in
them.
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