Differentiation Strategy: Definition, Types

Differentiation Strategy Defined

Differentiation Strategy: Definition, TypesDifferentiation strategy is concerned with product differentiation. It refers to making a company’s product different from the similar products of the competitors.

Although there can be differentiation in services’ too, in this book we would use the word ‘differentiation’ mainly to mean differentiation of tangible products.

As a marketing terminology, differentiation means making a product ‘ different from the similar products of the competitors.

According to Philip Kotler, differentiation is the act of designing a set of meaningful differences to distinguish the company’s offerings (i.e., products) from competitors’ offerings.

A differentiated product is unique by itself. A product can be differentiated based on its form, shape, quality, durability, reliability, repairability, style, design, or some other features of the product.

A product would become differentiated from that of the competitors if its form (size, shape or physical structure) is changed.

For example, Tanin (manufacturer of plastic products) can differentiate its round-shape plastic tea-table by changing its shape to square- size or oval-shape. ‘Red Leaf marker pen may be differentiated by making it transparent.

Features of a product (such as the exterior finish of a car, fragrance of perfume powder or color of toothpaste) can be the themes for product differentiation.

Performance quality (low, average, high or superior quality in terms of using the product for a particular purpose) can be used as the basis of product differentiation. A company may set its products at a high-quality range and gradually switch down to average or low quality or switch up to superior quality.

However, each of these has merits and demerits. Conformance quality is another theme of product differentiation when all the produced units are identical and meet the: specifications; of the product.

The goal of Differentiation Strategy

The goal of a differentiation strategy is to achieve a. competitive advantage by offering a unique product to customers.

When a product becomes unique due to differentiation, it becomes attractive to customers.

However, the differences made in the product must be of value to customers.

A product with differentiated features can command premium prices (prices above the industry average). Customers are usually to pay premium prices because they value 1he differentiated features of the product.

Thus, the company that adopts a differentiation strategy can increase profits by charging higher prices and can’ outperform its competitors.

Types of Differentiation Strategy

There are two types of a differentiation strategy.

They are;

  1. Broad Differentiation Strategy,
  2. and Focused Differentiation Strategy.

A “broad differentiation strategy” is adopted by a company, to be ‘unique to a wide range of customers. in this case, ‘a large number of customers’ is the focus and those customers consider the differentiation -valuable, to them.

For example, a cement company is offering its product to a broad market with the brand name.

On the other hand, a differentiation strategy is called a focused differentiation study when the company divide its market into several small segments (niche) and then offers a product design for each market second segment.

For example follows of focused differentiation strategy in that it offers normally bolted cola, canned cola and diet-cola for differentiation different segments.

7 Ways to Differentiate Your Business from the Competition / How Organizations Can Achieve Product Differentiation

There are various types of differentiation themes. These themes provide ways to achieve differentiation. A company can pursue differentiation on the basis of these themes.

Hill and Jones suggested several ways to achieve differentiation in a company’s products.

  1. Differences in quality.
  2. Innovation.
  3. Responsiveness to customers.
  4. Responding to customers psychological desires.
  5. Wide choice of customers.
  6. Reliability of products.
  7. Availability of spare parts/peripherals/accessories.

Differences in quality

A company may differentiate its product simply by increasing quality and reliability.

Innovation

For highly technologically complex products, innovation is an important source of differentiation. Computers, stereos, television sets and refrigerators require differentiation based on new innovated features.

Nokia and Samsung are continuously differentiating their mobile sets through innovation – changing its features.

When innovation is the basis for differentiation, a firm may include multiple new features in a product, as is done often by laptop manufacturers and automobile producers.

Responsiveness to customers

A company may differentiate a product based on responsiveness to customers.

When this becomes the basis for differentiation, the company offers comprehensive after-sales services including repair.

This sort of differentiation is highly workable in the case of products which require frequent after-sales services, such as microwave ovens, television sets, computers, cars and the like.

Responding to customers psychological desires

An important source of product differentiation is a company’s response to the psychological desires of customers.

Customers may desire to have a special status or unique prestige from using a product. This is especially important in the case of luxury or fashion goods and specialty products.

Many customers feel proud of having a BMW car or a Rolex watch. Sony and Samsung use ‘prestige and distinctiveness as the basis while they produce wide-screen TV set (such as Sony Home Theater).

Wide choice of customers

Differentiation of a product may be done by making available items of any kind in the same product-line instantly to customers as per their demand.

Berger Paints Ltd. has adopted a differentiation strategy by making ‘color bank’ program.

By this strategy, any shade of color can be provided instantly to any retail paint-customers. It has given a competitive advantage over the competitors.

Reliability of products

A product may be differentiated by improving its features/quality so that it becomes more reliable than the competitors’ ’ products.

Customers consider Philips bulbs more reliable than other available bulbs in the market simply because of their reliability.

Availability of spare parts/peripherals/accessories

When a company guarantees easy availability of spares and other necessary accessories, customers are attracted to them.

Toyota spare parts are more abundantly available than, for example, Civic Honda or Mitsubishi.

It is thus obvious that based on the nature/use of the product and the nature of the target customers, products can be differentiated along with various themes.

Themes for differentiating products and services

ThemesExamples of applicability
Unique tasteFood products such as bread, drink, juice, chocolate, etc.
Multiple featuresAutomobiles such as Toyota and Mercedes-Benz, and software such as Microsoft Office.
Wide selection/one-stop shoppingRetail chain shops such as Agora, Walmart and Target
Special featuresTransparent ball pen or soap or halal soap.
Superior serviceOvernight delivery of parcels by a courier service company
Prestige and distinctiveness56-inches television set or Sony Home Theater; Rolex watch.
Product reliabilityRevlon Company or Max Factor in cosmetics; Philips in bulbs; Partex in vinyl boards.
Full range of servicesHospitals
Availability of spare partsToyota automobiles, Sony television sets.
A complete line of productsAluminum products.

 

Market Situations Favorable for Differentiation Strategy

Managers wonder, will our differentiation strategy at all work in the marketplace?

When will the differentiation strategy work best?

The answer is not easy. In reality, a differentiation strategy may not be suitable for all types of products or in all kinds of market situations.

lt is likely to work best when;

  1. Several ways of differentiation exist.
    product.
  2. Buyers highly value the differentiated attributes of the product.
  3. There is diversity in buyers’ needs.
  4. The competitors are pursuing different/unique differentiation approaches.
  5. Rapid technological changes and innovation make the industry volatile.
  6. Competition is revolving around rapidly evolving product features.

Let’s discuss the issues more elaborately.

Ways for differentiation

If the ways to differentiate a product are limited, it becomes difficult to profitably differentiate the product. Differentiation strategy works well in situations where there are many ways to differentiate the product

Buyers’ perception

Differentiation would also be successful if a large number of buyers perceive that the differentiation is valuable. Buyers must be benefited from the J differentiation in order to be successful.

Diversity in needs

Buyers usually have differences in their preference.

One group of buyers may prefer one combination of product-features. But another group may not like the same features.

Existence of such differences in buyer preference facilitates a company to pursue different approaches to product differentiation.

Different approaches to differentiation by different competitors

Another situation where companies may be successful with differentiation strategy is a situation of following different approaches of differentiation by different companies who are competitors.

When there are few competitors who follow similar differentiation approaches, there is less chance of head-to-head rivalry among them.

This is because the companies try to attract customers based on a different combination of features.

Technological change

When there are rapid changes in technology and product innovation, companies can go for a differentiation strategy to maintain buyer interest in the product.

Competition around evolving features

A product may be I subject to evolving gradually around different features. That means, there are changes in the features of the product on a j regular basis.

If the market situation is such; that competition among the companies centers around rapidly evolving product-features, the firms can pursue separate differentiation approaches.

In order to maintain the interest of the buyers, the company may indulge in rapid product innovation and introduction of new versions of the product frequently.

Reasons for Failure of Differentiation Strategy

The common reasons for failure in differentiation strategy include:

Attributes with little value

It is quite natural that consumers will be interested only in such new product attribute that will give them value.

If the firm fails to consider the consumer’s perspective in terms of the value of the attribute, its differentiation strategy is bound to fail.

Easy to copy

Differentiation strategy will fail if the competitors can quickly copy or imitate the differentiated features, in that case, buyers will find no difference among the products of competitors.

Inability to benefit buyers

Differentiation does hot work when buyers perceive that it could not, reduce their cost, or increase lead stomach their well-being.

Over-differentiation

One important reason for the failure of a differentiation strategy is over-differentiation of product.

Over ­differentiation occurs in a product when differentiation leads to a much higher price than the price of the competitors. Over­differentiation may also occur if differentiation pf product causes product-quality to exceed buyers needs.

Failure to understand buyers

Differentiation will obviously fail if the company cannot understand what buyers consider as necessary or attractive.

Every differentiation must be done based on buyers viewpoint not the viewpoint of the company.

Buyers’ satisfaction with basic product

When buyers are satisfied with a basic product (originally launched product or the currently offered product), differentiation strategy may fail.

Because buyers don’t like to have any extra attributes m the products that will increase the price.

It thus appears that a differentiation strategy may not always work. It is difficult to give any guarantee that the differentiation of a product would result in a competitive advantage in the market.

Success depends on careful analysis of buyers’ needs and their perceptions.

Let the buyers say what kind of new features they want to have in the product. You can gauge the perception of buyers through consumer survey and market intelligence.

Sustainability of Differentiation Strategy

Sustainability of differentiation strategy is an important issue for a company.

If product differentiation cannot be sustained the company may incur huge losses This necessitates confusing of a consumer survey to determine the needs and preferences of buyers.

Based on the survey results, the company should undertake initiatives to incorporate unique attributes in its products.

Additionally, a company needs to address the following issues to achieve sustainability:

  1. The company must try to adopt those differentiation approaches that would be hard or expensive for the competitors to copy (or duplicate). However, strong competitors might be able to clone any feature of a product over a period of time. For example, when Nokia introduced video camera and internet capabilities in the mobile sets, Samsung and LG followed the suit within a few months.
  2. Differentiation has to be linked to ‘core competencies, unique competitive capabilities, and superior management of value chain activities.’ The basis for a company’s product differentiation would be sustainable if the competitors cannot readily match their competencies with those of the company! Sustainability can also be achieved if competitors cannot manage the value chain activities as unique as the company itself.
  3. A company may ensure the sustainability of differentiation when it can base its differentiation on new product innovation, technological superiority, quality, reliability, unique competitive capabilities, and superior/comprehensive customer service. This issue is very important because it would be tough for the competitors to easily copy these differentiating attributes.
  4. The differentiation attributes must be of value to customers. A particular differentiating attribute may seem to the company very valuable and appealing, but if it is viewed by customers as having no or little value, the differentiation strategy will never sustain.