DIFFERENTIATION-It is one of the generic marketing strategy approach under which a firm aims to develop and market unique products for different customer segments
A firm differentiates itself from its competitors “when it provides something unique that is valuable to buyers beyond simply offering a low price.”
Every firm has opportunities for differentiating its offering to customers, although the range of differentiation opportunities depends on the characteristics of the product. An automobile or a restaurant offers greater potential for differentiation than standardized products such as cement, wheat, or computer memory chips. These latter products are called “commodities” precisely because they lack physical differentiation. Yet, even commodity products can be differentiated in ways that create customer value: “Anything can be turned into a value-added product or service for a well-defined or newly created market,”
Analyzing differentiation requires looking at both the firm (the supply side) and its customers (the demand side). While supply-side analysis identifies the firm’s potential to create uniqueness, the critical issue is whether such differentiation creates value for customers, and whether the value created exceeds the cost of the differentiation.
By understanding what customers want, how they choose, and what motivates them, we can identify opportunities for profitable differentiation.
Differentiation strategies are not about pursuing uniqueness for the sake of being different. Differentiation is about understanding customers and how our product can meet their needs. To this extent, the quest for differentiation advantage takes us to the heart of business strategy. The fundamental issues of differentiation are also the fundamental issues of business strategy: Who are our customers? How do we create value for them? And how do we do it more effectively and efficiently than anyone else? Because differentiation is about uniqueness, establishing differentiation requires creativity – it cannot be achieved simply through applying standardized frameworks and techniques. This is not to say that differentiation is not amenable to systematic analysis. As we have observed, there are two requirements for creating profitable differentiation. On the supply side, the firm must be aware of the resources and capabilities through which it can create uniqueness (and do it better than competitors). On the demand side, the key is insight into customers and their needs and preferences. These two sides form the major components of our analysis of differentiation
A differentiation business strategy assumes that competitive advantage can be gained through particular characteristics of a firm’s products. Products may be categorized as:
a.Breakthrough products offer a radical performance advantage over competition, perhaps at a drastically lower price. a. Improved products are not radically different from their competition but are obviously superior in terms of better performance for a similar price. b. Competitive products derive their appeal from a particular compromise of cost and performance. For example, cars are not all sold at rock bottom prices, nor do they all provide comfort and performance. They compete with each other by trying to offer a more attractive compromise than rival models.
Differentiation strategy has been seen vital and important strategy with its advantages registered over disadvantages. As illustrated below. Advantages | Disadvantages | Brand loyalty and perceived uniqueness are entry barriers | New entrants can differentiate too | Customer loyalty is a weapon against substitutes | Sooner or later customers become price sensitive | Customers have no comparable alternatives | Customers may not value the differentiating factor | Higher margins can offset vulnerability to supplier price rises | Differentiation may require specialist inputs | Creation of loyal and unique customers | Competitors can copy | Differentiation will help make people aware of your business and know what makes it desirable. It will make you stand apart from run-of-the-mill competition. It will enable you to “be somebody” instead of just another “me, too”, clone. | | Differentiation will lead People differentiate my business through their perceptions of the business and through the grapevine of referrals and opinion-sharing. If you are able to communicate your difference effectively, and then fulfill your promise, you can shape people’s views of you within your marketplaceNo pressure to lowering prices | | | |