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The current markets are cluttered. Whether you’re starting out or are an existing business, if you want to stay fresh for your audience and customers, you have to keep innovating. Moreover, you need to differentiate your product from your competitors to stand out. It’s the key to the growth of organizations in today’s markets. Here we discuss what is a differentiation strategy, its examples, advantages and disadvantages.
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What Is A Differentiation Strategy?
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Types Of Differentiation Strategies
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Benefits Of Differentiation Strategy
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Disadvantages Of Differentiation Strategy
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Differentiation Strategy Examples
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What Is A Differentiation Strategy?
A differentiation strategy is the approach businesses use to attract and keep customers by giving them a unique product or service. The main goal of this strategy is to attain a competitive advantage. Businesses do a SWOT (strength, weaknesses, opportunities and threats) analysis and understand their customers’ needs to arrive at this differentiation.
Most organizations find it difficult to differentiate because they only talk about the main product or service they offer. This is often the same as what their competitor is offering. If you wish to stand out among the competition, you must clearly communicate the unique value proposition you offer to the customer.
Types Of Differentiation Strategies
There are two main types of differentiation strategies:
1. Broad differentiation strategy:
When a company wants to attract a broad base of customers, it creates a superior product with better features. They reach out to a bigger market with similar needs. For example, Nat Habit is a company that makes fresh, natural products for skin and hair. Their key differentiator is that their products are fresh and all-natural.
2. Focused differentiation strategy:
When an organization targets a specific or niche market segment, it creates unique products for each of those segments or niches.
Nat Habit has different products for different customer needs. For example, the company produces different kinds of hair masks for different needs, such as hair fall control, dandruff control, and grey hair control.
This also shows us that the same company may use both broad and focused differentiation strategies for reaching out to niches among a broad base of customers.
Benefits Of Differentiation Strategy
When considering differentiation strategy advantages and disadvantages, the number of benefits is higher. Let’s have a look at the advantages of differentiation strategy:
1. Lower Price Competition
It’s common to see companies engage in price wars with competitors. However, by differentiating your product or service, you can compete on grounds other than price. (blueiceland.is) If the quality of your product is unmatched, then competitors will have a hard time competing even if their prices are lower. This is one of the best advantages of differentiation strategy.
2. Unmatched Products and Services:
As already discussed, if you have unique products, your competitors will take some time before, if at all, they match up. In the meantime, you have the opportunity to use innovative marketing and advertising strategies to let your product be in a league of its own.
3. Greater Profit Margins:
Product differentiation allows you to charge a premium for your product. Once your product achieves stickiness with your customers, you will have more return customers. This would mean that even with fewer sales, you can have higher revenues.
4. Brand Loyalty:
The consumer’s mind is a cluttered place. With the differentiation, your product creates its own unique place in the consumer’s mind. However, the consumer is also fickle. So, only if your product delivers on the promised differentiation will you be able to cement that unique place.
5. Lack Of Perceived Substitutes:
While there are few products that have a substitute, with a differentiated product, you can create the perception of the lack of one. Such a perception creates a competitive advantage for the company.
Disadvantages Of Differentiation Strategy
While discussing the differentiation strategy advantages and disadvantages, we must list these disadvantages that organizations must watch out for:
1. Increased Cost:
Every time an organization thinks of using the differentiated marketing strategy, there’s an undeniable added cost component. When you create several variations of the same type of product, there’s bound to be an extra cost. This is why some companies find it difficult to do product differentiation.
2. Inconsistency:
Often, companies with highly differentiated offerings are riddled with inconsistent communication. To overcome this disadvantage of differentiation strategy, it’s important to have umbrella communication, such as cutting-edge technology and innovative leadership in the case of Apple Inc., even as they deal with different segments and niches.
3. Affordability:
Differentiated marketing strategy has an inherent cost which also reflects in the premium pricing of products. Such products often have to compete with knock-offs of their own product. Though, with proper packaging and design and clear communication, such products don’t have difficulty in maintaining their price-point.
4. Cannibalization:
Companies often create too many differentiated products when a few would have sufficed. This could lead to cannibalization within the brand. To negate this disadvantage of differentiation strategy, it’s important to create a limited number of differentiated products.
Differentiation Strategy Examples
There are many differentiation strategy examples. Let’s have a look at a few. Tesla Inc. uses product innovation as their differentiation business strategy. Similarly, Hubspot is synonymous with inbound marketing. The term was used keeping in mind the popularity of ‘outbound marketing’ when it was first launched. Coca-Cola uses a focused differentiation business strategy by producing Coca-Cola Original Taste, Coca-Cola No Sugar and Coca-Cola Light Taste No Sugar.
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