Chapter 7: Product Differentiation

Last week, it was discussed how some companies use the Cost Leadership model as an economic strategy in which to grow their business. Organizations who utilize Cost Leadership operate on the assertion that the best way to grow profit is through low operational and production costs. While it is still possible for these companies to produce high quality items, primarily groups that employ this tactic tend to create goods and services that are cost efficient/discount alternatives to the pre-existing standards. While some may think that this would be highly unpopular with the public as the most individuals would like to spend their funds on high quality items, the idea of getting "more bang for your buck" has taken over.

However, not all companies utilize this strategy. Chipotle for example operates by what is known as Product Differentiation. According to Barney, "Product Differentiation is a competitive business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products and services relative to the perceived value of other firm's products and services." As was mentioned in previous posts, Chipotle prides itself of providing food with integrity which is exemplified in its GMO and hormone free entrees and sides. While this a somewhat "safer" (more healthful) alternative that makes customers happy (thereby creating customer loyalty/value), it is extremely costly undertaking as organic products are more expensive than the standard alternatives.

Also, Chipotle rarely charges extra for additional items on their entrees (unless it's meat or guacamole). This boosts customer patronage as consumers recognize the value in their purchase as the mantra of the "customer is always right" is seemingly followed to a tee. The extra money Chipotle spends on creating a pleasant customer experience through acquiring excellent employees (which costs a bit more) adds to the operating costs as well.

Overall, Chipotle does not skimp on extras and goes the extra mile to provide exemplary service at the expense of it's bottom line. However, the revenue/profit Chipotle hopes to acquire from their product differentiation strategy has proven to be successful in creating one of the largest fast food restaurants in the marketplace today.

Quality Product and Customer Service: How Chipotle Conquered a Crowded Market