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Business competition arises when firms strive to outdo each other in the market to establish a unique and profitable position for themselves.
In a competitive business environment, having a differentiation strategy means standing out from the rest of the competition and presenting prospective customers a reason(s) to pick your product/service over those of the others.
In India, before 2003, there were only two passenger airlines. Air travel was expensive and out of the reach of most of the population. In August 2003, Air Deccan entered the under-served Indian aviation market with a differentiated value proposition. Deccan ushered into India the concept of Low-Cost Carriers (LCCs). Deccan offered no-frills air travel at affordable prices. Thereafter, air travel literally ‘took off’ in India. Deccan spawned the birth of several other LCCs, opened up the Indian aviation market, brought prices down and made air travel accessible to many more customers.
Organizations often fail to devise an effective differentiation strategy and end up being indistinguishable from the competition. Clear articulation of the marketing message and value proposition will enable a differentiated branding of your product/service, and help you stand out from the competition.
Challenges of Designing a Differentiation Strategy
- Competing only on features is unsustainable in the long term. Eventually, competition will catch up on features, and all products/services will eventually get commoditized. For example, over time, all smartphones look the same and offer similar features.
- Competing solely on price is also unsustainable. The current status of the Indian telecom market after the entry of Jio telecom is an apt example of this.
- Entry barriers like lack of capital, access to technology, etc. could be entry barriers that make it difficult for new businesses to emerge.
Being a stand-out brand with a distinctly differentiated product is difficult. To gain customers, your differentiation needs to be clear and big.
Types Of Differentiation Strategy
There are two general approaches to designing a differentiation strategy:
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Broad Differentiation Strategy
If your firm aims to attract a wide range of customers who have similar needs, it would be necessary to adopt a broad differentiation strategy. A good example of broad differentiation strategy is a cement manufacturer targeting, through broad differentiation, distributors, wholesalers, and retailers. Using broad differentiation, the organization capitalizes on the cement’s brand name and highlights its strengths, such as its setting speed and superior quality. Broad differentiation helps the organization appeal to different customers. Another example of broad differentiation strategy would be Bisleri selling bottled water using its well-recognized brand name and attributes such as mineral content, water purity, and so on; it also includes appealing to distributors, retailers and end customers.
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Focused Differentiation Strategy
If a broad differentiation strategy isn’t suitable for your product/service, you could opt for a focused differentiation strategy. While pursuing focused differentiation, you’d have to target one or more specific market segments. Focused differentiation allows you to target one or all market segments and provide custom products for each. Coca-Cola, with its Diet, canned, and bottled colas, is a focused differentiation strategy example that serves three distinct market segments. Another focused differentiation strategy example would be a manufacturer of shoes making sports shoes, ladies/men’s footwear, formal footwear and so on, for different market segments.
Within the above general differentiation strategies, there are six specific approaches or types of differentiation strategies that you could use:
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Product Differentiation
Consumers identify a product based on its physical characteristics. Brands adopting this type of differentiation strategy strive to give their product a different physical look. A product can be differentiated through its features, superior performance, greater efficacy, etc., to appeal to end users. This type of differentiation strategy is most commonly adopted in B2C markets (and sometimes in B2B markets too). For example, Coca-Cola differentiates its product through its established brand name and its unique taste. Despite the availability of beverages from other brands, customers identify Coca-Cola by its unique taste.
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Service Differentiation
In this type of differentiation strategy, firms devise a differentiated approach to serve their customers. Uniqueness in service can be achieved through differentiated order processing, reduced wait times, service quality, etc. The fast food chain McDonald’s, is a good example of a brand with service differentiation. All McDonald’s outlets across the world serve food the same way, and the food served tastes the same — barring minor changes to suit local preferences. McDonald’s differentiates its service by providing consistent quality.
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Distribution Differentiation
To achieve differentiation in distribution, you need to create standardized and reliable distribution channels. Organizations manufacture a product and then create an efficient supply and distribution chain to make the product available to dealers, distributors, retailers and customers. The efficiency of the distribution channels can become a point of competitive advantage. The e-commerce giant, Amazon, owes a large portion of its success to the distribution differentiation it has achieved. Amazon provides quick deliveries for all its customers. It provides even faster deliveries for Its Prime’ customers for a nominal fee.
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Relationship Differentiation
Organizations focus on customer care management to create differentiation in customer relationships. They also strive to achieve relationship differentiation in their dealings with their employees, suppliers, etc. Indigo airlines, in its in-flight announcements, addresses its passengers as ‘boys and girls’ and names the crew along with the places they come from to create an intimate and personal relationship, increasing customer loyalty.
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Image Differentiation
This type of differentiation strategy requires the creation of a differentiated brand image. This is achieved through differentiation on multiple factors such as superior product quality, impeccable service quality, stand-out performance, etc. Rolls-Royce creates image differentiation not only through the quality of its automobiles but also the quality of its dealerships, after-sales service, professionalism of its employees, etc.
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Price Differentiation
This type of differentiation strategy is sometimes also referred to as price discrimination. Here, different prices are charged for the same product by varying the prices for different customers/markets to increase market penetration and revenue. Indigo airlines (and also other airlines) have varied prices for the same route depending on how early you purchase your ticket, weekend journeys, your choice of seat, festival/non-festival season, student status, etc.
From among the different types of differentiation strategies available, whichever you choose to employ for your strategy to be effective, it should make it difficult and expensive for competitors to copy. The strategy should be linked to your unique competencies and competitive capabilities. It should be driven by constant innovation to achieve overall product/service superiority. Most importantly, it must be of value to your customers.
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