Differentiation strategy definition
/What is Differentiation Strategy?
Differentiation strategy involves the development of unique products that differ significantly from those of competitors. By doing so, a company can convince customers to accept higher price points, which in turn results in higher margins. This strategy requires that a company continually invest in enhancing its products, so that it always maintains an edge over its rivals in the features being offered to customers. To be successful with the differentiation strategy, a company must have a top-tier team of product designers and marketing personnel, as well as high-quality products and services. It must also have a heavy investment in branding, so that the targeted customers will recognize the products that the company has developed for them.
If the firm steps back from any of these efforts, then the perceived level of differentiation will decline over time, making it more difficult to maintain the high price points.
Advantages of the Differentiation Strategy
There are several advantages to the differentiation strategy that make it a favorite of many companies. First, the business may end up with a devoted following, which not only appreciates its niche focus, but also contributes suggestions for how to improve its products further. These customers may also recommend the company’s products to their friends and family, resulting in lots of free marketing. Finally, the differentiation strategy allows a business to charge higher prices for its offerings, so that it can generate above-average returns. These returns can then be invested back into the business, thereby enhancing the firm’s competitive position with even better products.