Formulating the Business Model: Customer Needs and Product Differentiation
There are Two factors determine which product a customer chooses to satisfy these needs: (1) the way a product is differentiated from other products of its type so that it is appealing and (2) the price of the product. All companies must differentiate their products to attract customers. Some companies, however, decide to offer customers low-priced products and do not engage in much product differentiation. Companies that seek to create something unique about their product differentiate their products to a much greater degree than others so that they satisfy customers’ needs in ways other products cannot.
Product differentiation is the process of designing products to satisfy customers’ needs. A company obtains a competitive advantage when it creates, makes, and sells a product that better satisfies customer needs than its rivals. If managers devise strategies to differentiate a product by innovation, excellent quality, or responsiveness to customers, they are choosing a business model based on offering customers differentiated products. Differentiation has another important aspect. Companies that invest their resources to create something distinct or different about their products can often charge a higher or premium price for their product.
Customer Groups and Market Segmentation is the second important choice involved in formulating a successful business model is to decide which kind of product(s) to offer to which customer group(s). Customer groups are the sets of people who share a similar need for a particular product. Because a particular product usually satisfies several different kinds of desires and needs, many different customer groups typically coexist in a market. In the car market, for example, some customers need basic transportation, some desire top-of-the line luxury, and