Differentiation Leadership for Competitive Advantage

Introduction

This essay aims explore the concept of differentiation leadership as an approach to achieve (and possibly sustain) competitive advantage, an idea analysed theoretically by many authors and practiced by a number of businesses. Through developing a strategy, benefits and implications for business are explored at length. In particular, the essay views differentiation leadership as a taxonomy which consists of strategic behaviour demonstrated through cooperation and competition, deterrence and commitment. The literary evidence suggests that by the deployment of such tactics, a firm can influence competitive outcomes and set the competitor on the course of change. This assignment is structured as follows, the literature review section starts by defining competitive advantage from a few distinct theoretical perspectives. In particular, this essay focuses on how John Lewis and Partners sustain competitive advantage by using differentiation leadership as their strategy.

Firstly, the implications of differentiation leadership are presented. Secondly, the benefits of differentiation leadership are presented with some examples from prior research. This is then followed by a critical review of the presented theory. In the second section, industry examples are presented to strengthen and substantiate the claims made in the literature review. The focus is on the department store John Lewis and Partners, which includes a brief historical view of the business and its competitors. This is then followed by a detailed analysis of the business and how they use the differentiation leadership strategy using the findings from the literature review. A conclusive paragraph is produced, to sum up, the theoretical arguments presented. This is then followed by tentative and non-declarative recommendations.

Literature Review

Businesses are constantly challenged by a changing environment both internally and externally. Therefore, the need for implementing a strategy becomes vital. Strategy is a plan created to achieve long term goals and objectives with the use of resources necessary for carrying out these goals (Chandler, 1962). Whilst Certo and Peter (1990) define strategic management as, ‘a continuous, iterative process aimed at keeping an organisation as a whole appropriately matched to its environment’. Johnson et al (2008) also highlighted that’s strategy is about exploiting the strategic capabilities of an organisation, in terms of its competencies, to not only provide a competitive advantage but also help to yield new opportunities. Considering the changes taking places in the international environment, it is essential for businesses to monitor them through developing a strategy.

Drucker (1994) stated that “Strategy is a firms theory about how to gain a competitive advantage” and competitive strategy is about being distinctive. It requires choosing a different set of activities to output a unique mix of value (Porter, 1966). Competitive advantage is when organisations are able to acquire or develop a set of attributes that allows it to outperform its competitors (Wang, 2014).

Porter’s generic strategies (1980) suggests three business strategies that could be adopted in order to gain a competitive advantage with one of them being ‘differentiation.’ Differentiation is a method that businesses may use which provides a product/service which has unique features or brand compared to competitors so they could create an innovative brand image for their company (Lewis, 2007).

Differentiation strategy tends to be developed around many factors such as product quality, technology, innovation, brand image, firm reputation, durability, and customer service, which must be difficult for rivals to imitate (Moses, 2010). Competitive advantage is possible to be achieved after the differentiation strategy as they will have the ability to create entry barriers to potential entrants by building customer and brand loyalty through these characteristics. Furthermore, Barney (1991) emphasised that it is important for organisations to establish entry obstructions obstruction in order to prevent imitation from its competitors and take advantage of their resource for the purpose of sustaining the international competitive advantage.

According to Bowman’s Strategy Clock (1998 ), The aim of a differentiation strategy is to offer customers the highest level of perceived added value and to also provide high-quality products at a reasonable price. Apart from focusing on product quality, emphasis is put on branding in order to retain loyal customers. By developing a reliable brand image, customers may even be ready to pay more for these products as they are sensitive to the high-quality products of a renowned brand in the market.

Differentiation can be beneficial as the strategy enables businesses to charge a premium price to customers ( Wit & Meyer, 2007). It also enables the company to have a dominant brand image in the market so could create customer loyalty ( Hill & Jones, 2008). Another way in which differentiation was defined is that it is a company’s breakthrough in improving customer satisfaction by creating new services (Johnson & Scholes, 2001).

However, a limitation of differentiation could be that the sustainability of the brand versatility is in doubt since competitors may imitate it (Jayarathnam, 2015). Also, another weakness of implementing this strategy would be that in order for businesses to gain competitive advantage, they need to constantly make effort and creativity to stay distinctive(Hill & Jones, 2010). This would mean that organisations are not able to use the strategy once as differentiation is an ongoing strategy in order to remain versatile.

Case study

The John Lewis Partnership is the UK’s largest employee-owned business. It operates John Lewis & Partners department stores, Waitrose & Partners supermarkets, its banking and financial services, and other retail-related activities. John Lewis and Partners is a multi-channel department store which provides goods and services related to home, beauty, technology and fashion. There are 50 John Lewis and Partners department stores within the UK and 22 shop-in-shops internationally. When the business was incorporated in 1929 by John Spedan Lewis, he wanted to create a partnership which held the shares in trust for all employees, who in turn became full partners in the business and received shares from the profits. This was the first democratic strategy created in the retail industry which used differentiation in order to increase performance, then, in turn, increase profits and has proved successful since. During early 2018, John Lewis claimed to reinvest in their shopping and customer experience, create new innovative experiences both in-store and online, also at a faster pace. This is because they experienced a 22% decline in profit as they generated a profit of £289.2 million in 2018 compared to £370.4 the previous year. Therefore, the decision was made because of restrained customer demand, political uncertainty and general inflation in the British economy.

John Lewis and Partners is part of an oligopoly as it is one of the largest retail department stores in the UK with their main competitors being of the likes of Debenhams and House of Fraser. Traditionally, their target market has tended to be very upmarket, however, recently they have strategically tried to attract millennials with many their range available and promotions to do with beauty, technology and fashion. The pricing of goods situates the firm in the mid to lower end high market range, as they offer their own fashion brand(of which sales increased by 12.9% (2018)) and own brand electrical range (which sales increased by 11.2% (2018)). The remaining profit is made up of mid to high-end third-party brands.

Analysis

John Lewis and Partners are constantly modifying strategies in order to combat internal and external factors which may be a threat to the business. Their blend of product and service continues to set an example and make them one of the market leaders. In order to gain a competitive advantage, their main strategic focus is differentiation rather than scale (Mayfield, 2018). The business has many ways they have and intend to put in place in order to differentiate themselves from competitors.

Differentiation via Products

In March 2017, John Lewis and Partners launched their first in-house denim lifestyle brand for women AND/OR and built on the success of their luxury own-label – modern rarity. Currently, 30% of its products are own-brand and exclusive, and they’re thriving for this to rise to 50% for a competitive edge. In 2017, the partnership said that customer reviews of its own branded products scored an average of 4.5 out of five, which beat third-party brands.

Another way in which John Lewis and Partners aims to gain competitive advantage over not only competing department stores but also technology-based stores is providing a fixed two-year guarantee on all of their technology products. This is unique because typically brands only tend to provide a one year guarantee, meaning customers would be alluded to buy from this business in order to take advantage of this perk.

Differentiation via Service

In 2018, John Lewis and Partners customised their department stores by introducing experience desks which provides customers a concierge-style service to make the most out of their John Lewis experience.

Due to being a retailer whose primary focus is the customers and the service provided to them, they have succeeded and the business has managed to score highly in many national surveys. John Lewis and Partners scored the highest in a survey conducted by YouGov (2017) which was regarding consumer perceptions of quality and reputation. Another study conducted in 2018 by the UK Customer Satisfaction Index (UKCSI) from The Institute of Customer Service resulted in the business being amongst the top 5 brands which offered best customer service. No other department stores were listed in these surveys, making John Lewis and Partners stand out from the rest. Therefore, the organisation plans on continuing to focus on customer experience, both by strengthening their weaknesses and by maintaining the level of service provided which is expected by customers (Mayfield, 2018).

Differentiation via E-Commerce

Due to increasing trends in e-commerce activities and a reduction of consumers engaging in physical spending (Dover, 2018), the emergence of strategic management in order to accommodate this change has to be put in place. Click and collect has become increasingly popular. It is outpacing growth in the online retail channel and is predicted to account for 13.9% of total online spending in 2022 (GlobalData). This also reflects the online sales for John Lewis as it grew by 9.9% (2018) compared to the previous year and is expected to rise to 50% by 2020.

However, to maintain the competitive advantage, the business has ensured that they provide convenience to customers who use this service by allowing them to collect their good the very next day rather than having to wait the traditional 3-5 working days. Not only that, but customers also have the option to collect their John Lewis click and collect purchases from any Waitrose store, therefore, further enticing people to use this service as it may bring them ease.

Due to the success of the click and collect service, John Lewis invested £800,000 to equip staff with iPhones (2018), providing them with technology to allow them to them to assist customers more quickly and professionally on the spot. This was to encourage an increase in product knowledge for Partners and also give the ability to provide stock figures on the device rather than checking manually in order to save time, which in turn should help to boost sales. This strategy helps to meet the aim of providing a good service, which should result in customer satisfaction.

Differentiation via Marketing

The John Lewis’ Christmas TV advert has gained so much popularity over the years, that each year there is a lot anticipation and excitement for it. Their 2016 Christmas advert was announced the world’s biggest, attracting 21 million global views on YouTube. This resulted in 40% of John Lewis’ profits being reportedly produced during the five weeks prior to Christmas. This effective strategy seizes the right opportunity to entice a wide range of audience from all age ranges which helps to create a buzz and aids to increase sales. This in return, makes John Lewis distinct from its competitors as this level of anticipation for a Christmas advert hasn’t been achieved by any retailer but themselves yet. This form of differentiation would help to limit competition especially at this time of the year (Whitehead, 2011).

Differentiation on an International Scale

The department has a store in Ireland and many stores within stores in Far East Asia and the Middle East. Robinsons is a leading department store in those parts of the world and includes John Lewis concessions within which helps gain brand awareness and generate more profit.

Moreover, John Lewis also provides an international delivery service which includes countries in Europe, Middle East, Far East Asia, USA, Australia, Africa and more. This service is also provided by the majority of their competitors, however, what distinguishes them from the rest is the fact that their delivery prices are lower making it cheap and cheerful for international consumers.

Differentiation via Slogan

‘Never knowingly undersold’ is the business’ way of promising that you will not find a better price elsewhere and if you happen to, John Lewis will match the price for you. Their competitors do not advertise this promise, therefore, customers may just visit stores to browse to take advantage of this scheme. Attracting customers this way could help to increase sales and generate more profit as most items sold in the store are of high value. This successful slogan creates a distinctive service led culture which reflects the beliefs of the company.

Differentiation via Employees

The Chairman of the John Lewis Partnership, Sir Charlie Mayfield (2018) stated that “our unique blend of product and service continues to lead the market” and the Partners (employees) are the “point of difference and its competitive advantage” and that the business would continue to invest in them. This shows that the employees have a lot of significance in the workplace as they understand that without their expertise and helpful service, they would not be receiving as many sales. John Lewis has developed a reputation over the years for the service they provide, creating a relationship with customers in order for them to stay loyal with them. This has now become their USP as ‘ for us, its personal’ (2018) in order to re-emphasise what the business aims to provide to customers (a helpful, knowledgeable and positive service). This form of differentiation would help to increase brand loyalty (Kreitner and Cassidy, 2011).

Differentiation via Rebranding

In 2018, John Lewis rebranded to John Lewis and Partners. This was due to a few reasons which reinforce some of the other mentioned points of differentiation. During this same year, the business had announced that its focus strategy currently is differentiation (Mayfield, 2018). By adding on ‘and Partners’ to the end of their brand name, the organisation is reinforcing to both the employees and customers that the employees are at the heart of their business. This should help customers to psychologically believe that because the employees are so trusted by the firm, they should too. Therefore, customers expect to receive an exceptional service which should be provided as per John Lewis standards which would help to increase sales and maintain customer loyalty.

John Lewis and Partners rebranded at a time where there was a gradual rise in economic uncertainty. This was leading to low consumer confidence due to Brexit which made an impact on the business as they noticed a reduction in sales, as did most of their competitors. The Treasury model states that the problem of uncertainty is that we do not know what the outcomes are likely to be and the outcomes are likely to have varying probabilities (Keynes, 1936). Therefore, rebranding was essential to create a buzz in the media and remind customers of the business values and how much they invest in their employees in order to provide an amazing service to them.

Conclusion

To conclude, differentiation is necessary in order to keep up with the rapidly changing environment. John Lewis has a popular brand name not only in the department store sector but also with amongst brands who sell niche products, for example, home and technology stores. By having USPS’s such as an extra year guarantee on all technology products and providing customers the ability to price match other high street retailers, it would make them feel like that they’re in control and benefit from the sale. This is important as it would help to increase customer satisfaction about their shopping experience and would help to develop customer loyalty.

Furthermore, as stated by ( Wit & Meyer, 2007), differentiation can be beneficial as the strategy allows businesses to charge a premium price to customers. Therefore, John Lewis and Partners charge premium prices for their products and services as they have built a brand over the years which is known for providing exceptional service. This, in turn, has gained a reputable brand image loyal customers as this form of professionalism is not as common in retail as it once was so it is now deemed as being valuable.

Subsequently, John Lewis and Partners have managed to gain a market leading position in the department store industry with the use of their capabilities and resources over the years to achieve competitive advantage using a differentiation strategy.

Recommendations

In order to remain relevant within the market and have a competitive advantage over the years to come, it is essential for John Lewis and Partners to introduce products and brands which would attract the millennials as the future of retail will soon revolve around them. For example, in terms of fashion, the majority of the stock reflects the brand image of being smart, elegant and professional. Therefore, it may be beneficial to introduce a change and provide products which aim to relate to trends of the younger generation which is at an affordable price in order to gain their approval and brand loyalty.

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