Price/Feature Matrix

Customers buy a product by weighing the benefits they receive from a product versus its cost.  Benefits are usually gained through a product’s features.  A company can choose a strategy of offering products which are differentiated, by features or functionality, from its competitors’ products, and a differentiated product can sometimes be offered at a higher price.  Alternatively, a company can choose a strategy of offering products which are similar to its competitors’ products, but at a lower price.  In practice, a company’s strategy usually includes both differentiation and low cost, but it is useful to try to determine which of these two is most prominent.

A company also must decide whether to pursue different strategies in different parts of the market (usually defined by different customer types).  For example, Dell offers competitive prices for desktop computers but offers various different features in its notebooks at a premium price.

We summarize these Price and Feature decision as follows:

Price/Feature Matrix
		Features
		Commodity	Differentiated
Price	Low	I	III
	High	II	IV

I - Commodity (Flash Memory)

II - Going out of business (IBM PC business sold to Lenovo in China)

III - Buying market share with big price/performance leadership (usually a temporary promotion). Blockbuster’s price war with Netflix

IV - Premium products (Mercedes)

Products can become standardized (PCs, Flash Memory, DVDs, etc.), which makes continued differentiation very difficult, and competition is then predominately on price and operational efficiency.

It is often difficult to pursue a low cost strategy while focusing on one segment of the market while simultaneously focusing on a differentiated strategy in a different segment of the market.  Companies that try are said to be “straddling” a market and losing focus. For example United Airlines formed a separate subsidiary (United Shuttle) to compete with Southwest Airlines for price-conscious (less interested in service) customers in the Western US. United, because of its history, was not able to focus on and fully embrace the activities necessary to compete with Southwest.