Competitive Differentiation Strategy – Meaning, Areas, Factors and Drivers

An organization that adopts a differentiation strategy seeks to distinguish itself from competitors through the quality of its products or services. Organizations that successfully implement a differentiation strategy are able to charge more than competitors because customers are willing to pay more to obtain the extra value they perceive. For example in case of Rolex they pursue a differentiation strategy, Rolex watches are handmade precious metals like gold or platinum and stainless steel and are subject to strenuous tests of quality and reliability. The firm’s reputation enables it to charge thousands of dollars for its watches.

Firms use differentiation strategy to achieve a competitive advantage by providing unique products and these products attributes high quality and innovations. Differentiation is not just limited to the product but it also covers the delivery system and many other factors. Firms provide additional services to its customers with these differentiation characteristics which brings more profit with a premium price. Porter (1985), further suggests that these two generic strategies are fundamentally contradictory to each other and it’s important for the business to choose one of them. Cost leader can only gain the high performance if the business offer a satisfactory level of value to its customers which fulfilling the demand of their customers. Similarly differentiation strategy will only be successfully if the premium price of the product charged to customers characterized with some valuable features and customers are satisfied with that.

There are many factors which results in differentiation. some of them are,

1. To have a competitive edge on its rivals.
2. To facilitates the entry restrictions for newcomers by building a new product
3. To minimize the threats from its substitutes.
4. To create a differentiation advantage.

Different Areas of Differentiation

When a company use differentiation strategy, it focus on providing a product or service with unique features. Product differentiation satisfies the specific needs of customer and it allows the company to charge a premium price which helps the organization to capture the market share. The differentiation strategy only gets implemented effectively if the business provides product of superior quality and after sale support. Organizations charge higher prices to its customers when they follow the differentiation strategy based on the product features, their customer service and the delivery system business use. The quality it offers to its customer can be real or distinguished based on the fashion or brand name. The differentiation strategy fulfills the specific or complicated customer’s interest in a unique and higher quality product and for which he is ready to pay a higher price.

When organization use the differentiation strategy then it must be ready to add a premium to the cost but it is not to recommend that costs and prices are not be considered but is not the main focus of the organization. However as the customers likes the product because of its uniqueness and higher quality so they become loyal to the business and do not mind in paying the higher price for the products.

Sources of Differentiation

Its not only the low prices of products that can create the differentiation of company from other but offering a unique product to its customer can create a differentiation to its competitors. That unique product should be more valuable to its customers. Differentiation also happened that how a company perform its function and what impacts does it have on its buyers. For example differentiation enables the company to meets the demands of its customers anywhere. It should have uniqueness and must have superior quality of its product as compared to its competitors.

Factors/ Drivers for Differentiation

• Location- This is a very important for an organization to have a uniqueness in respect to its competitors. If the organization have its branch at a location which is easily accessible to its customers as compared to the others company’s stores then the store will defiantly will have a competitive edge on the others organizations.
• Integration- An organization will be considered to have uniqueness its level of integration is high, its mean its level of coordination of value activities is high then it will create differentiation.
• Timing- An organization can effectively adopt a differentiation strategy if its timing of enchasing the opportunities is well on time. It will create uniqueness in the organization.
• Interrelationships- Customers can be offered better services by using effectively the different activities in the company.
• Scale- If the goods are produced at a small scale then the uniqueness of the products will be lost over a long period of time. Larger the scale of goods and services then there will more uniqueness. Differentiation of the organization depends on the volume of uniqueness.
• Learning- In order to perform well in the market a continuous learning process should be adopted.
• Institutional factors- If the management will have good relation with its staff that mean company will be having a good impact on its sale. This will also create uniqueness.