Differentiation

DIFFERENTIATION

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  Firms that compete on uniqueness and target a broad market are following a differentiation strategy.
  
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  A firm that follows a differentiation strategy attempts to convince customers to pay a premium price for its goods and services by providing unique and desirable features.
  
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  Using a differentiation strategy means that a firm is competing based on uniqueness rather than price and is seeking to attract a broad market (Porter, 1980).
  
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  Successful use of a differentiation strategy depends on not only offering unique features but also communicating the value of these features to potential customers. The product difference may be based on product design, method of distribution, or any aspect of the product (other than price) that is significant to the consumer.
  
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  Successful differentiation can mean greater product flexibility, greater compatibility, lower costs, improved service, less maintenance, greater convenience, or more features.
  

ADVANTAGES AND DISADVANTAGES OF DIFFERENTIATION STRATEGY

Advantages

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  A key advantage is that effective differentiation creates an ability to obtain premium prices from customers.
  
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  To the extent that differentiation remains in place over time, buyer loyalty may be created.
  
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  A differentiation strategy also creates benefits relative to potential new entrants.
  

Disadvantages

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  The big risk when using a differentiation strategy is that customers will not be willing to pay extra to obtain the unique features that a firm is trying to build its strategy around the unique product may not be valued highly enough by customers to justify the higher price
  
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  Competitors that sell less expensive options with the same quality for a price sensitive buyer. Buyers will not pay the higher differentiation price unless their perceived value exceeds the price they are paying.
  
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  Product imitations- Differentiation does not guarantee competitive advantage, especially if standard products sufficiently meet customer needs or if rapid imitation by competitors is possible.
  
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  A final risk for firms pursuing a differentiation strategy is changing consumer tastes.
  

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  Common organizational requirements for a successful differentiation strategy include strong coordination among the R&D and marketing functions and substantial amenities to attract scientists and creative people.
  
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  The most effective differentiation bases are those that are hard or expensive for rivals to duplicate. To the extent that differentiating attributes are tough for rivals to copy, a differentiation strategy will be especially effective, but the sources of uniqueness must be time-consuming, cost prohibitive, and simply too burdensome for rivals to match.