Differentiation strategies are an attractive competitive approach when buyer preferences are too diverse to be fully satisfied by a standardized product or when buyer requirements are too diverse to be fully satisfied by sellers with identical capabilities.
In simple words, the essence of a differentiation strategy is to be unique in ways that are valuable to customers and that can be sustained.
To be successful with a differentiation strategy, a company has to study buyer’s need and behavior carefully to learn that:
- What they consider important
- Why they think has value, and
- What they are willing to pay for
Competitive advantage results once sufficient number of buyers become strongly attached to the differentiated offering , the more that customers bond with the company and the stronger the resulting competitive advantage.
Successful differentiation allows a firm to:
- Command premium price for its product, and or
- Increasing unit sales (because additional buyers are won over by the differentiating features), and or
- Gain buyer loyalty to its brand (because some buyers are strongly attracted to differentiating features and bond with the company and its products).
Company’s differentiation strategies fail when buyer don’t value the brand uniqueness enough to buy it instead of rivals’ brands and/or when a company’s approach to differentiation is easily copied or matched by its rivals.
Therefore, the most appealing approaches to differentiation are those that are hard or expensive for rivals to duplicate.
Indeed, resourceful competitors can, in time, clone almost any product or feature or attribute. Therefore, when a company has competencies and capabilities that competitors can cannot readily match and when its expertise can be used to to perform activities in the value chain where differentiation potential exists, then it has a strong basis for sustainable differentiation.
As a rule differentiation yields a longer-lasting and more profitable competitive edge when it is based on new product innovation, technical superiority, product quality, and reliability, and comprehensive customer services. In other words, an organization which is operating based upon the fundamental principle of Total Quality Management can achieve this remarkable feat in today’s uncertain world of buyers preferences.
Source: Strategic Management: Tenth Edition, by Thompson Strickland