differentiation strategy

Prof. (Dr.) Nitin Zaware 1

Differentiation Strategy

Prof. (Dr.) Nitin Zaware


There could be small businesses or involved in a single business or a large, complex and diversified conglomerate with several different businesses. The corporate strategy in these cases is about the basic direction of the firm as a whole. In the case of the small firm, it could mean the adoption of courses of action that would yield a better profit for the firm. Business level strategies are concerned with a firm’s industry position relative to those of competitors. Corporate-level strategies are about the choice of direction that a firms adopts in order to achieve its objectives.


The concept of generic strategies for gaining competitive advantage has received considerable attention recently in the business policy field. Competitive Strategy, a modern classic of business thinking, provides a strong conceptual foundation for developing corporate strategy. Generic competitive strategies are the marketing strategy any of three strategies for marketing products or services: cost leadership, differentiation, and focus. The Differentiation Strategy refers to adding value to products or services.


Differentiation Strategy:With the differentiation strategy, the unique attributes and characteristics of a firm’s product provide value to customers.

Achieving Differentiation :Such differentiation can be achieved by

adopting following things.

1) A firm can use high-quality raw material

inputs, superior process technology, speedy

and reliable distribution or better after-sales

support.


2) It can incorporate features that offer utility for the

customers and match their tastes and preferences.

3) It can provide responsive customer service.

4) It can look for rapid product innovations and

technological leadership.

5) It can incorporate features that enable the

customers to claim distinctiveness from other

customers and enhance their status and prestige

among the buyer community.


Benefits of Differentiation Strategy

Benefits

Reduces Competitive

Rivalry

Bargaining Power of

Suppliers Entry

Barriers

Negligible Threat of Product

Substitutes


Benefits of Differentiation Strategy :1) Reduces Competitive Rivalry :It reduces customer’s sensitivity to price increases. Customer brand loyalty too acts as a safeguard against competitors.

2) Bargaining Power of Suppliers :A firm implementing the differentiation strategy charges a premium price for its products. So the suppliers must provide it with high quality parts.


3) Entry Barriers :Customer loyalty and the need to overcome the uniqueness of a differentiated product are substantial entry barriers faced by potential entrants.

4) Negligible Threat of Product Substitutes :Firms selling the differentiated goods or services are positioned effectively against product substitutes.


Limitations to Differentiation Strategy

Limitations

Difficulty in Sustaining

Differentiation

Over Differentiatio

n

Limit to Price

Premiums

Failure to Communicate Benefits

Imitation of Differentiatio

n


Limitations to Differentiation Strategy :1) Difficulty in Sustaining Differentiation :In a growing market, products tend to become

commodities. This is the case with the markets with most industries in India. The basis for differentiation is long-term perceived uniqueness. It is difficult to sustain. There is an imminent threat from competitors who can imitate the differentiation strategy.

2) Over Differentiation :Differentiation fails to work if its basis is something that is

not valued by the customer. This often happens in a case where unnecessary features are added for differentiation. Such things also occur when over-differentiation is done, carrying little tangible benefit for the customer.


3) Limit to Price Premiums :Price premiums too have a limit. Charging too high a price for differentiated features may cause the customers to forego the additional advantage from a product/service on the basis of their own cost-benefit analysis.

4) Failure to Communicate Benefits :The firm may fail to communicate the benefits arising from differentiation adequately. It may happen that the firm may rely too much on the fact that the intrinsic product attributes are readily apparent to a customer. This may cause the differentiation strategy to fail.


5) Imitation of Differentiation :A firm’s means of differentiation no longer provide value for which customers are willing to pay. The differentiation strategy becomes less valuable if imitation by rivals causes customers to perceive that competitors offer the same goods or service, sometimes at a lower price.