Differentiation Strategies
Differentiation strategies are attractive whenever buyers needs and preferences are too diverse to be fully satisfied by a standardized product or service.
Key Takeaways:
The essence of a differentiation strategy is to offer unique product or service attributes that a wide range of buyers find appealing and worth paying for.
Differentiation opportunities can exist in activities along the industries value chain and particularly in activities and factors that meaningfully impact customer value.
A differentiation strategy keyed to a product or service attribute that are easily and quickly copied is always suspect.
Differentiation strategies are attractive whenever buyer needs and preferences are too diverse to be fully satisfied by a standardized product or service. The essence of a broad differentiation strategy is to offer unique product or service attributes that a wide range of buyers find appealing and worth paying for.
A company attempting to succeed through differentiation must study buyer needs and behavior to learn what buyers think has value and what they're willing to pay for. The company must then include these desirable features to clearly set itself apart from rivals lacking such product or service attributes.
Successful differentiation allows a firm to command a premium price. New buyers are won over by the differentiating features.
Because some buyers are strongly attracted to the differentiating features and bond with the company's products, companies can pursue a differentiation strategy from many angles, like:
a unique taste like Red Bull or Doritos
multiple features like Microsoft Office or the Apple iPhone
a wide selection of one stop shopping like the Home Depot or amazon.com
superior service such as Ritz Carlton or Nordstrom
engineering design and performance like Mercedes Benz or BMW
product reliability, like Whirlpool or Bosch
quality manufacturing like Michelin or Toyota and technological
leadership like 3M
Uniqueness Driver
A uniqueness driver is a value chain activity or factor that can have a strong effect on customer value and creating differentiation. Differentiation opportunities can exist in activities along the industry’s value chain, particularly in activities and factors that meaningfully impact customer value. Such activities are referred to as: uniqueness drivers. This has a high impact on differentiation rather than on a company's overall cost position. Ways that managers can enhance differentiation through the systematic management of uniqueness drivers include the following:
seeking out high quality inputs
striving for innovation and technological advances
pursuing continuous quality improvement
emphasizing human resource management activities that improve the skills, expertise, and knowledge of personnel
improving customer service or adding additional services
It's easy enough to grasp that a successful differentiation strategy must offer value in ways unmatched by rivals. A big issue in crafting a differentiation strategy is deciding what is valuable to customers. Typically, value can be delivered to customers in three basic ways:
First, including product attributes and user features that lower the buyers costs.
Second, incorporate tangible features that improve product performance.
Third, incorporate intangible features that enhance buyer satisfaction in non-economic ways.
Differentiation strategies tend to work best in market circumstances where buyers’ needs and users of the product are diverse. There are many ways to differentiate the product or service that have value to buyers. Few rival firms are following a similar differentiation approach.
Technological change is fast paced and competition revolves around rapidly evolving product features.
Differentiation strategies can fail for any of several reasons. A differentiation strategy keyed to a product or service attribute that are easily and quickly copied is always suspect. Differentiation strategies can also falter when buyers see little value in the unique attributes of a company's product. This includes overspending on efforts to differentiate a strategy flaw that can erode profitability.
A low cost provider strategy can always defeat a differentiation strategy when buyers are satisfied with a basic product and don't think extra attributes are worth a higher price.