Hypercompetition
Price / Quality
### Price / Quality

In his book *Competitive Strategy*, [Michael Porter](/wiki/Michael_Porter "Michael Porter") stated that there are only two basic competitive advantages, and thus only two main generic strategies: cost leadership and differentiation, and further, that attempts to achieve both at once will result in doing neither well. Porter assumes a tradeoff between quality and price.

In contrast, D'Aveni takes a dynamic and multidimensional view of price and quality relationships using graphical analysis. By plotting price vs. quality for various marketing strategies, it is possible to plot the movements of different firms, creating a multidimensional view of the overall market. Adding a time dimension to this analysis creates a more dynamic view.

Graphical analysis also reveals strategic groups, if any, that develop around different points on the graph. D'Aveni’s price\-quality mapping not only subsumes Porter's strategic groups, allowing not only for "within\-segment positioning" but also "between\-segment position", where nearby clusters can begin to directly or indirectly compete with firms that previously were not direct competitors.

Competition in the first arena, price/quality, occurs via seven dynamic strategic interactions: price wars, quality and price positioning, “the middle path”, “cover all niches”, outflanking and niching, the move toward an ultimate value marketplace, and escaping from the ultimate value marketplace by restarting the cycle.

Based on research using price\-quality graphs, some interesting lessons have been learned. Consider the price\-quality graph below which shows all of the iPods that were released over a five\-year period. This graph illustrates many of the dynamic principles in hypercompetition including movement towards the ultimate value (lower right hand corner), and how Apple built momentum toward it. Apple led the race to the bottom, but planned for the future by inventing the iPhone, which obsolesced the portable music player market. In addition, Apple maintained a full line of iPods that made it difficult to tell which product was stuck in the middle. In a sense, almost all the products were stuck in the middle between two other products.

Even more insights can be found if competitors are plotted on the same graph or if different types of quality are used for the graph. It is preferable to use the primary quality in the eyes of the consumer. Primary quality is determined by what is most important to consumers. Other definitions of quality are considered secondary qualities which can be used to redefine the primary quality and create a new playing field.Kim, W. Chan; Mauborgne, Renee (2005\). *Blue Ocean Strategy*. Harvard Business School Press

Because different segments of a market may view primary quality differently, it is sometimes best to perform price/quality analyses for different segments. For example, the sports car segment of the automobile market primarily values engine performance. Meanwhile, the soccer mom segment primarily values safety; the commuter segment primarily values fuel efficiency; and the luxury segment primarily values brand perception such as product prestige. Surprisingly, reliability is not on this list because it is now table stakes, and not a point of differentiation.

Also surprisingly, safety features such as seatbelts were not valued when they cost $150 each. But when competitors produced seatbelts in such volume that they only cost $10 each, seatbelts became much more important, eventually being mandated by the government. So, it is not only the consumers that define perceived quality, but competition and regulations can affect it as well.


What are some examples of companies that have successfully achieved both cost leadership and differentiation?