Differentiation is a marketing strategy that involves distinguishing products or services from similar offerings in the market. Differentiation strategy, therefore, entails the development of unique products/services in terms of their features, design, quality, image, and customer service among others. What it means when a business entity decides to pursue differentiation strategy is the attempt to become distinct from its competitors in the market by offering products and services suited to sufficiently meet or exceed the needs and expectations of customers. Due to its role in sustaining competition, differentiation strategy remains one of the most studied competitive strategies with focus placed on aspects such as the basis of its application, advantages, and disadvantages.
The goal of differentiation is to transform an organization into an outstandingly special firm from the rest of the organizations in its industry. Therefore, the basis of its application varies depending on the nature and dealings of a firm. The common basis of differentiation includes product/service and pricing but some studies such as that of Brenes, Montoya, and Ciravegna (2014) suggest other foundations such as the organization itself, user convenience, and branding. To have the edge over rivals, firms often invest heavily on R&D for purposes of producing the best products and services through innovation; products that exceedingly meet customer requirements. On the part of differentiation on pricing level, often, market forces determine the prices of goods and services. However, to gain a competitive advantage, some firms might set their prices at the lowest possible rate or for the case of Apple Inc., gain superiority by charging maximum prices. Although not widely practiced, some firms gain differentiation from an organizational level. It usually involves earning success through brand name, goodwill, customer loyalty, and location advantage: a prime example of a corporation that has benefited from this strategy is the Coca Cola Company.
Differentiation strategy is known for its plausible advantages to business entities. It helps businesses shield themselves from competition, some of which can be harsh. The idea behind differentiation is to attain and maintain a sustainable competitive position in the market. However, it is also a strategy that allows firms to shield themselves from the adversities of competition (D. Banker, Mashruwala, & Tripathy, 2014). An example of a firm that differentiated itself from the rest with the objective of avoiding competition is Lush. All known makeup brands mass-produce their goods using whatever ingredients work and are available, Lush has, however, taken its route and produces handmade products that are completely from natural ingredients and mostly vegan. The approach has made the company a brand of choice for many consumers seeking makeup products made from ethically-sourced and healthy ingredients.
Customer loyalty is another advantage of effective differentiation strategy. In a world that is characterized by numerous business entities, most of which offer similar goods and services, gaining customer loyalty can be a challenge because consumers are also well informed regarding brands and their products (D. Banker, Mashruwala, & Tripathy, 2014). A company that has extensively benefited from differentiation through customer loyalty is Apple Inc. By standing out as the most superior brand in the field of technology, Apple has gained a large customer base that is also ultimately loyal to the extent the brand does not have to market its products and services but still outperform its rivals.
In spite of its advantages, the differentiation strategy has its drawbacks to firms. Price-based differentiation that involves setting maximum prices can be detrimental for a brand. For instance, when substitute products hit the market at incredibly lower prices, customers will shift to a brand with cheaper offerings. A majority of consumers are price-sensitive, and that means when they can get similar products (in terms of quality and quantity) at cheaper rates, they would not hesitate to abandon their favorite brands (Makadok & Ross, 2013). The other disadvantage is that differentiation is costly; it consumes time and resources. Before a firm executes its differentiation goals, a significant amount of resources has to be channeled to functions such as research and design to determine the most appropriate strategy (Makadok & Ross, 2013). In some cases, differentiation might be beyond the capability of an organization.
Competition in today’s world of business is inevitable, and it is important to have a strategy that edges a firm from its rivals. Many scholars approve differentiation strategy as an ideal effort to not only surviving competition but also gaining superiority or evading it all together. In spite of its numerous advantages, as the analysis reveals, differentiation has its downsides if not well calculated. The secret to enjoying the benefits of differentiation is comprehensively studying the market and executing a well-calculated differentiation move suited to meeting the marketing needs of a company.
Brenes, E. R., Montoya, D., & Ciravegna, L. (2014). Differentiation strategies in emerging markets: The case of Latin American agribusinesses. Journal of Business Research, 67(5), 847-855.
D. Banker, R., Mashruwala, R., & Tripathy, A. (2014). Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy?. Management Decision, 52(5), 872-896.
Makadok, R., & Ross, D. G. (2013). Taking industry structuring seriously: A strategic perspective on product differentiation. Strategic Management Journal, 34(5), 509-532.