Differentiation strategy, as its name suggests, is the approach that seeks to differentiate a product or service from similar items offered by competitors. It involves the creation of a product or service that is distinctive in terms of product design, features, brand image, quality, and customer service. The differentiation approach is one of the three generic strategies proposed by Porter; the other two are cost leadership and concentration.
When a company follows a differentiation strategy, it strives to distinguish itself in its field by providing customers with products and services of high value. In this strategy, the company selects one or more of these customer-relevant dimensions. Thus, the company is able to establish a distinct image on the market and command a premium price for its originality.
1. Product: In order to get an advantage over the competition, a business may provide clients with innovative products that meet their needs in the most efficient manner. This could incur astronomical costs for research and development, production, and marketing. In spite of this, the return on investment exceeds the cost, as the company becomes the market leader in supplying this product.
2. Pricing: Market factors, i.e. supply and demand, determine the price of the product, therefore it tends to fluctuate and is heavily influenced by client value. To differentiate its goods through pricing, a company can either charge the lowest price possible or charge the highest prices possible.
3. Organization: Differentiation can also be built on an organization’s structure, in which a company achieves success through its brand name, location advantage, goodwill, and customer loyalty, among other factors.
Nevertheless, the strategy is susceptible to a number of dangers, such as imitation by rivals, a shift in fashion, a shift in consumer preferences, etc.
To achieve distinction, a business can implement the following measures:
- Provide value to the customer by providing a product that meets their wants and preferences precisely
- Innovation in products
- Boost product effectiveness
- Determine the price of the product based on its characteristics and the purchasing power of the consumer
- Develop a brand image through enhancing quality, services, and customer satisfaction
To successfully implement differentiation strategy, all which is required is a thorough research of consumer requirements and preferences to determine the viability of combining numerous differentiating characteristics into a unique product that possesses the needed attributes.
In the event of a successful implementation of the strategy, the company will be able to charge a greater price for its product than its competitors and earn customer loyalty due to the consumers’ familiarity with the product’s distinctive features. Product performance, usability, useful life, superior service, and so on, are examples of differentiating characteristics.