Differentiation Strategy

Differentiation strategies are attractive whenever buyers’ needs and preferences are too diverse to be fully satisfied by a standardized product or service. The essence of a broad differentiation strategy is to offer unique product or service attributes that a wide range of buyers find appealing and worth paying for.

A company attempting to succeed through differentiation must study buyers’ needs and behavior carefully to learn what buyers think has value and what they are willing to pay for. Then the company must include these desirable features to clearly set itself apart from rivals lacking such product or service attributes.

Successful differentiation allows a firm to - Command a premium price. Increase unit sales (because additional buyers are won over by the differentiating features). And gain buyer loyalty to its brand (because some buyers are strongly attracted to the differentiating features and bond with the company and its products).

Differentiation opportunities can exist in activities all along an industry’s value chain and particularly in activities and factors that meaningfully impact customer value.  Such activities are referred to as uniqueness drivers have a high impact on differentiation rather than on a company’s overall cost position.

A low-cost provider strategy can always defeat a differentiation strategy when buyers are satisfied with a basic product and don’t think “extra” attributes are worth a higher price.

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