Use A Functional Orientation Shift To Differentiate Your Product
A great way to differentiate a product when lowering costs is to use the Blue Ocean Strategy of more functional orientation in less important features of the product or brand. Do not reduce the features and benefits for which customers have strong emotional ties or reactions. This a slight variation of Mike Bolden’s “selective feature reduction” strategy in which less important items are chosen to take costs out along with the elimination of unimportant extras. Although the lower-priced item is differentiated, it’s still associated with the brand, so it is key to determine the right price point “prestige threshold” level. To gauge this point, observe and access:
1. Competitors in the same marketspace
2. Competitors above and below your product/brand’s marketspace
3. Range of spending for like items by your customer base

Downward Shift To A Different Marketspace
In lowering the price point for a luxury-goods item, it is critical for a manufacturer to avoid shifting its market position in the price-performance vertically “straight south” without differentiating the product, and moving laterally “left” or “right.” By shifting downward to the left by reducing or changing product features or to the right by adding or altering features, a goods-maker is entering a different marketspace, and the Blue Ocean strategy means the water’s fine!

How To Differentiate
Now, here’s how to differentiate using Blue Ocean Strategy, while maintaining or minimizing costs. It’s all about the key benefits of your product and/or the key customer touch points for service-oriented businesses – these have the greatest effect on perceived satisfaction or quality. It is vital to understand the perception of key benefits of your product or service – and the features which relate directly to them. Look to maintain these features during any economic climate, especially a recession. But, use the strategies of cost reduction previously discussed, to drop costs for certain “over-supplied” features.

Combat Recession – Eliminate Low Utility Features
During this recession, an interesting but predictable shift in spending habits has occurred with U.S. consumers. They are rapidly trading down in the retail categorization, out of mid-range or up-scale stores or food providers. McDonald’s sales were up last quarter, as consumers are spending less at mid-range and premium restaurants. So, what can the mid-range and premium product and service providers do? Again, use the lower costs strategy. Offer products or services which eliminate – not just lower — cost, and eliminate low utility features and/or benefits. Look at dimensions which can be gotten rid of altogether. This will lead to developing lower cost products which focus on “low cost” or “value” consumers. This will expand the reach of your consumer base, and should offer increased sales and revenue.

Innovation With Lower Costs Products
This optimized “dipping” will lead to either new products or services, or line extensions – both options have solid benefits. The key for either new product development or line extensions is to retain the important features and benefits of the mid-range or premium product and brand. It allows your products and services to remain branded which is key because your products will likely be competing against private label goods. If your company can innovate a new product while maintaining key benefits with lowered costs – that is optimal. Avoid “me too” line extensions if you can, and extend products consistent with the brand but with some differentiable qualities. This will raise your product or service’s utility above private label products and other lower-cost brands.

Innovating With A Reduced Budget
An important aspect of this strategy is that it allows a business to innovate with a reduced budget and lower revenues. The key differentiating features of your product or service must be maintained – and even enhanced and further developed. The costs that are taken out of production, distribution, and/or customer provision and service delivery, balances the up-keep or selective addition of expenses in critical customer high-utility areas. Executives and managers – focus on the key elements of the customer experience for your product or service. This allows your product or service to stay true to the brand, and more importantly affirms customer expectations and perception. Remember, it comes down to this for your product or service’s feature dimensions: prioritize, select, and augment (by developing or enhancing).