Competing in Design: Differentiation, Imitation, and Value Capture

Abstract

We propose a unifying framework for the role of visible product design as a driver of interfirm competition, covering aspects of both value creation and value capture. We introduce the concept of “relative” product differentiation and theorize how design choices, by affecting consumer preferences through horizontal, vertical, and relative differentiation, codetermine firms’ market positions. We argue that psychological processes involved in comparative evaluations combine to generate quality spillovers, and develop a model of perceived product quality to analyze the conditions under which similarity to a competing design is beneficial. Regarding value capture from design, we suggest that consumer reactions to design similarity may act as natural barriers to imitation. In highlighting the competitive role of design, we corroborate its strategic relevance and unveil additional levers for creating competitive advantage.

Keywords: product design, competition, relative differentiation, value creation, value capture

JEL Classification: L15, O31, O34