Differentiation Strategy Essay Example
Differentiation Strategy Essay Example

Differentiation Strategy Essay Example

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  • Pages: 4 (860 words)
  • Published: August 12, 2017
  • Type: Paper
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In this paper, we will discuss the Differentiation Strategy.

In contrast to the cost leading scheme, executing a distinction scheme involves providing value to clients through the unique characteristics and features of a company's products rather than through the lowest price. Differentiated products, which meet customers' unique needs or preferences, allow companies to charge higher prices. To outperform competitors and achieve above-average returns, the price of the differentiated product must exceed the cost of distinction.

In summary, the monetary value charged for a differentiated product typically exceeds the cost of the standard merchandise. Companies that focus on product innovation and developing features valued by customers, rather than competing on price, follow a differentiation strategy. Differentiation can be achieved through various methods, such as superior quality, unique features, responsive customer service, rapid product innovation, advanced technology, engineering design, additional features, and creating an image of


prestige or status. For example, Intel differentiates its products based on speed.

The company's emphasis lies on the significance of quality, accuracy, and speed throughout its primary and secondary value-creating activities, using invention and fabricating techniques as foundational elements of uniqueness.

Additionally, the emphasis is on comprehending and meeting customers' unique preferences and monitoring the speed, reliability, and quality of activities conducted by external entities that interact with the company's inbound and outbound logistics.

Despite companies following distinction schemes, they cannot completely ignore costs and the need for minimum spending on process-related innovations (1985). However, a company that effectively implements a distinction strategy can achieve higher returns, even in the presence of strong competitive forces.

Competition with existing competitors involves achieving customer loyalty by differentiating products in meaningful ways. Building brand loyalty means that customers will be

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less influenced by price changes. As long as the company meets the specific needs of loyal customers, it can avoid competing solely on price. This is possible through creating meaningful distinctions that give bargaining power to the buyers.

Companies create unique products, which sets them apart from their competitors and reduces customer sensitivity to price increases (similar to having a competitive advantage over existing rivals). By satisfying customer preferences in ways that no other competitor can, companies are also able to charge higher prices (due to the lack of comparable product alternatives). The power of suppliers to negotiate is influenced by the company's ability to charge premium prices.

Discriminators have a certain level of insulation from suppliers' monetary value additions, as they can handle increased costs from powerful providers due to their higher margins. Conversely, discriminators can also raise prices to compensate for additional supplier-related expenses, thanks to lower price sensitivity among customers.

Due to the differentiator's focus on product quality and responsiveness to customer preferences, providers may be compelled to offer discriminators with higher quality materials, components, or services. The primary obstacle for potential entrants is the loyalty of customers to the uniquely differentiated brand. This implies that a potential entrant must either surpass the distinctiveness of existing products or provide similarly differentiated products at a lower price in order to enhance customer value. The loyalty to the brand can effectively safeguard differentiated products from substitutes.

Without trade name trueness, customers have the potential to switch to alternative products that have similar features but are priced lower, or to products that offer more appealing features at the same price. Similar to the cost leadership strategy, the differentiation strategy

also has its risks. Customers may perceive the cost of uniqueness to be too high. In other words, there is a possibility that they might choose not to patronize a brand due to its high price for a unique offering.

The discrepancy in monetary value between standardized and differentiated merchandise is extremely high. It is possible that the company offers a higher level of uniqueness than customers are willing to pay for. The company's unique features no longer hold value for customers. For example, what is the worth of prestige or exclusivity? And how long will these factors remain important as customers become more sophisticated? Customer acquisition may diminish the perceived value of the company's uniqueness.

Through experience, clients may discover that the extra cost spent on a unique product is no longer as valuable as it used to be. This depreciation in value due to customer acquisition or changes in customer perspectives can be demonstrated by IBM's experiences at first.

The IBM brand on a personal computing machine indicated value to clients, but soon competitors challenged IBM's dominant position in the Personal computer market. As clients realized that these competitor machines offered similar features at lower prices, the value associated with the IBM brand diminished and IBM's sales continued to decline. A fourth threat is related to counterfeiting, which is becoming more prevalent.

Forgery goods, which are products that try to offer unique features to customers at much lower prices, can cause concern for companies using a differentiated strategy. In such situations, companies need to find ways to enhance the value they provide to customers. This can involve reducing prices, enhancing product features without increasing prices, or creating

new efficiencies in their primary and secondary activities within the value chain.

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