A2. Determining the basis for differentiation


1. Determine who the real buyer is – the one or more specific individuals, within the buying entity, who set the purchase criteria (the buying entity may be a firm, an institution or a household)


2.  Identify the buyer’s value chain – the value the firm provides to the buyer is determined by the way, directly or indirectly, it impacts upon the buyer’s value chain, either by lowering costs or improving performance


3.  Determine and rank buyer purchase criteria – analysis of the buyer’s value chain provides the foundation for identifying such criteria which should then be ranked according to the value the buyer attaches to each


4. Assess the existing and potential sources of differentiation – by determining which of its value activities impact each of the purchase criteria, a firm can identify its current or potential sources of uniqueness


5. Identify the cost of these sources of differentiation – the cost of differentiation is a function of the cost drivers for those activities that provide the firm’s sources of uniqueness


6. Configure the value chain to create the greatest value relative to cost – the intention is to create the widest gap between buyer value and the cost of differentiation


7. Test for sustainability – this requires identifying both stable sources of buyer value and erecting barriers to imitation


8. Reduce costs in activities that do not affect the chosen forms of differentiation