What Is Differentiation Strategy? Examples and Benefits

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One of the most difficult issues that entrepreneurs and marketers continue to confront is standing out from the crowd. It’s one thing to want to stand out from the crowd, but how can you do it? In many circumstances, the solution lies in developing an effective differentiation strategy.

In this article, we’ll examine what a differentiation strategy is, how to create one and how a differentiation strategy can benefit your company.

What Is Differentiation Strategy?

Differentiation strategy entails creating unique items that stand out from competitors’ offerings. By doing so, a company can persuade customers to accept higher price points, resulting in larger margins.

According to Indeed, the main objective of implementing a differentiation strategy is to increase competitive advantage. A business can achieve this by analyzing its strengths and weaknesses, the needs of its customers, and the overall value it can provide.

To be successful with the differentiation strategy, a corporation must have a top-tier team of product designers and marketing experts, as well as high-quality products and services. It must also make significant investments in branding so that the company’s products are recognized by the intended clients.

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Types Of Differentiation Strategy

There are two major types of differentiation strategies that a business may carry out: a broad differentiation strategy and a focused differentiation strategy.

1. Broad Differentiation Strategy

A broad differentiation strategy is creating a brand or business that is distinct from its competitors in some way. It is used in the industry and appeals to a wide spectrum of consumers.

When a business wants to attract a large number of customers, it develops a superior product with more features. They target a larger clientele with similar needs. Nat Habit, for example, is a company that creates fresh, natural skin and hair care products. Their main point of differentiation is that their products are all-natural and fresh.

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2. Focused Differentiation Strategy

A focused or targeted differentiation strategy requires the business to offer distinctive features to a product or service, and it must fulfill the requirements of a niche or narrow market.

When a firm targets a specific or niche market segment, it creates special products for each of those segments or niches.

Differentiation Strategy Examples

Let’s take a look at a few examples of differentiation strategies based on the two types discussed above.

Example of a broad differentiation strategy

Assume that hourly billing is common in your sector. Offering a pay-for-results charging approach, on the other hand, would set you apart from competitors.

Developing a broad-based differentiation strategy, in which your company is considerably different from your industry as a whole, is hard to achieve. And even if you were able to pull it off, do you have what it takes to stay unique and keep your competitor from replicating your strategy?

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Example of a focused differentiation strategy

In this type of strategy, you narrow your appeal to a niche audience. For example, an accounting firm that works exclusively with chain restaurants has a very compelling differentiator to that niche market segment. However, a different audience segment, such as automobile dealers, would not cherish working with an accounting firm that specializes in restaurants.

Here are five differentiators well-known companies and brands used to increase their value and separate themselves from their competition:

  • Committed to ethical buying and maintaining the uprightness that comes from purchasing unique handmade items.
  • Focused on image, community, and quality with costly products that are built to last and maintain value.
  • Hosted events, ran multiple blogs, and created an app that shows innovation in day-to-day tasks.
  • Made fast-food service better through the use of high-quality ingredients.
  • Pushed the limits of products and services and positioned their brand to become essential through advertising campaigns and product placement.

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How To Create A Differentiation Strategy

Companies that want to develop a broad or targeted differentiation strategy must manufacture or design incredibly distinctive products or services that add value for the customer. An establishment can develop a differentiation-based competitive advantage for either a specific product or the entire business in a number of ways.

The following steps will help you develop a differentiating strategy:

1. Select your desired reputation

You need to be aware of your level of business expertise. You’ll need to assess what’s important to you, your company, and the niches where your firm excels. This way, you will be able to deliver a narrow differentiator to your customers. Write down the strengths and weaknesses of your overall brand or specific products.

2. Know your target audience

Carrying out research will assist you in aligning your company’s services with the wants and needs of present and prospective customers. This will also help you choose differentiators that will make your knowledge more appealing. For example, you may opt to send a survey to customers who buy your products or utilize your services in order to obtain data on what they are looking for.

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3. Create differentiators

This phase is necessary so that you can identify what distinguishes your brand or items. Each differentiator may be wide at first, so try writing them down and then creating smaller subsections that focus them down. Here are some examples of common distinctions:

  • Price
  • Service
  • Image or reputation
  • Product
  • Distribution
  • Relationship

4. Tell your story

When you don’t have any innovation, having a story is the best approach to stand out with a commodity brand. Fishpeople Seafood is a B Corp that conveys the tale of stringent sustainability and accountability criteria. They emphasize their founding stories, but most importantly, you can trace the fish you’re about to eat and learn about its history.

When you tell your business’s unique story, it may automatically assist with your differentiation strategy since your competitors will obviously have a different story. To achieve this, evaluate your mission, vision, and values, and then craft an overall story about what sets you apart, which turns your target audience into customers.

5. Create a brand image

Implement your strategy and create a brand image by ensuring better quality. Try to be creative and rebrand, if necessary, to capture new clients and customers within your target audience.

Benefits Of Creating A Differentiation Strategy

Differentiation strategies have several benefits that can help you carve a distinct niche for your business. Here are the possible benefits of creating a differentiation strategy:

1. Reduced price competition

A differentiation strategy enables a company to compete in the market in ways other than reduced prices. A candy manufacturer, for example, may differentiate itself by increasing the taste or utilizing healthier ingredients. Although its competitors sell cheaper candy, they cannot match the taste that people expect from that particular candy company.

2. Unique products

The advantage of a differentiation strategy is that it capitalizes on a product’s distinct characteristics. Your company may compile a list of features that its products have that your competitors do not. These features will distinguish your goods, and you may communicate them effectively through marketing and advertising.

3. Higher profit margins

When products are differentiated and transformed into higher-quality products, the opportunity for higher profit margins increases. For example, if your target market is ready to pay a higher price for superior quality or value, you may be able to make more income with fewer sales.

4. It eliminates perceived substitutes

An effective differentiation strategy may present the concept that there is no other product on the market to substitute it with. Even if equivalent items are available, a company may obtain a competitive advantage in the market since buyers will not be willing to replace your product with another.

Companies attempt to distinguish themselves by offering consumers distinctive items that are frequently revolutionized.

5. It leads to consumer brand loyalty

If a company maintains the perceived quality of its products, effective differentiation can lead to client loyalty. For example, if a sports figure promotes your brand, it will most likely raise brand loyalty because it increases the value of your brand.

Are There Disadvantages Of Creating A Differentiation Strategy?

While the benefits of a differentiation strategy may seem appealing to you, there are disadvantages that organizations must watch out for.

1. Increased Cost

Every time a company considers utilizing a differentiated marketing strategy, there is an undeniable cost component. When you make many varieties of the same type of goods, there will inevitably be an additional expense. This is why some businesses struggle with product diversification.

2. Inconsistency

Companies with significantly differentiated offerings are frequently plagued by inconsistency in communication. To offset the disadvantage of the differentiation strategy, it is critical to have umbrella communication, such as cutting-edge technology and innovative leadership just like Apple Inc., even though they deal with distinct categories and niches.

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3. Affordability

Differentiated marketing has an intrinsic cost, which is reflected in product premium price. Such products frequently have to contend with knock-offs of their own. However, with adequate packaging and design, as well as clear communication, such products can easily keep their pricing point.

4. You can’t compete with features

Many businesses appear to believe this. Instead of distinction, they are focusing on incremental gains. “We have X that they don’t have.”

The issue is that any noteworthy and popular feature is duplicated. You can brag for a few months, but they’ll catch up. As soon as Snapchat Stories became popular, Facebook imitated it.

Even if you have something truly original, you may only have a two-year runway. Differentiation must originate from somewhere other than features. They’ll always make up the difference.

Tesla now has all of the long-range electric vehicles, but every automobile manufacturer will follow suit soon enough. To play that game, Tesla must remain a continual innovation. They might be able to pull it off with a lot of money and superb execution, but most won’t.

5. You become like your competition

Constant comparison and benchmarking breed homogeneity, and rivals lose their distinctness over time.

As the number of products in a category grows, the differences between competitors become increasingly insignificant, almost absurd.

Look no further than hotels to witness sameness in action. Almost every hotel provides free shampoo, lotion, and other items (shower cap?!) but no toothpaste or toothbrush.

How did that happen? Because they all look alike.

FAQs On Differentiation Strategies

What is a differentiation strategy?

Differentiation strategy entails creating unique items that stand out from competitors’ offerings.

What is a broad differentiation strategy?

A broad differentiation strategy is creating a brand or business that is distinct from its competitors in some way. It is used in the industry and appeals to a wide spectrum of consumers.

Is cost a challenge in differentiation strategy?

Every time a company considers utilizing a differentiated marketing strategy, there is an undeniable expense component. When you make many varieties of the same type of goods, there will inevitably be an additional expense. This is why some businesses struggle with product differentiation.

Conclusion

Once you understand what distinguishes you from your competition, you are well on your way to developing a solid differentiation strategy. It is however important to note that the market never stops moving. Competitors who are thoughtful will study your achievement and strive to replicate it. What was once a distinguishing feature may get neutralized with time. You will lose your competitive advantage.

To create a long-term differentiation plan, you must establish your reputation around those distinguishing features and make your knowledge extremely visible to your target audience. Your professional services brand will be built on this “Visible Expertise.”

References

  • cxl.com – Differentiation Strategy: What It Is, Why It’s Critical, and How To Get It Right
  • harappa.education – Differentiation Strategy: Meaning, Examples, Advantages and Disadvantages
  • hingemarketing.com – Differentiation Strategy for the Professional Services Firm
  • indeed.com – Differentiation Strategy: Definition, Benefits and Creation
  • masterclass.com – Differentiation Strategy: 5 Ways to Differentiate Your Product

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