A differentiation strategy is an approach that pushes organisations to develop a unique product or service compared to their competitors.
The strategy’s primary goal is to gain a competitive edge and earn a greater reputation in the target market. They have to offer something distinctive, engaging and exclusive to their clients that their rivals cannot.
It is a marketing approach which urges businesses to develop a unique product or service. A company can only develop a unique product/service by realising the underlying needs of its target customers.
Businesses do a SWOT analysis and understand their customers’ needs to arrive at this differentiation. Most organisations 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 competitors will be offering.
There are 2 categories of differentiation strategy:
1. Broad differentiation strategy
This is adopted when a company wants to target a wide range of customers, that is, the company wants to serve a broader market that has similar needs. They will upgrade an existing product but with enhanced features. For example Apple products and services.
2. Focused differentiation strategy
This is for a company that cannot use a broad differentiation strategy. The firm will choose a strategy which targets a specific niche segment of the market.
They can target one or more market segments at the same time. They will have to produce custom products for different markets. An example is Coca cola. They offer diet cola, canned coca cola and bottled drinks thus serving 3 different markets are the same time.
Types of differentiation strategies
1. Product differentiation
The most evident and noticeable type of differentiation strategy.
Customers tend to differentiate a product by its physical appearance.
Organisations use this strategy to make their product design unique for example: unique product features, product performance, product efficacy and consumer opinion.
This strategy is popular in Business to Consumer (B2C) markets. For example, Yanaya lifestyle. They offer unique products not common in the restaurant business such as bunless burgers or tsubvu smoothies.
2. Service differentiation
Creating an unusual way to serve customers. Customer service has evolved drastically. People want you to provide impeccable service with no wait time. Fresh in a box is a perfect example of service differentiation. Instead of someone going to a supermarket or to a vendor to get some fruits and veggies they can simply use the Fresh in a box online ordering system and get their veggies delivered to them in the comfort of their homes.
3. Distribution differentiation
Companies can create a personal distribution channel and manufacture products to make them available to dealers, distributors and retailers using this strategy. A company that focuses on distribution differentiation must concentrate on the supply chain as well. This helps in maintaining standardized distribution channels to create a competitive advantage.
Fresh in a box is another example that also works well in this context. They don’t have an offline store so they provide deliveries with their own courier service.
4. Relationship Differentiation
Companies creating excellent customer relationships is the best way to differentiate themselves from competitors. Using relationship strategy, companies can build a good relationship with sales representatives, employees and technical representatives. An example of a company with excellent relationship Differentiation is Tesla. Whenever a customer purchases a Tesla vehicle, they join the exclusive Tesla owners club. In this club owners share tips on how to maintain their cars, where they can get parts and general information about the latest deals.
5. Image differentiation
A combination of multiple differentiation strategies. It simply means to Innovate a reputed brand image.
An example is Rolls Royce. The company is famous for producing high performance luxury cars.
Whenever someone talks about luxury cars, Rolls Royce is always found at the top of the list.
6. Price differentiation
Charging different prices for the same product. Companies follow this strategy to capture bigger markets but they readjust their prices for different sets of customers/markets according to their price preferences. Price differentiation almost always leads to price wars with companies fighting over who can lower their prices the most, for example Amazon. The e-commerce giant readjusts the product price according to its competitors and the purchasing power of its buyers. Amazon doesn’t have physical retail stores which allow it to win price wars easily.
Benefits of a differentiation strategy
1. Reduced price competition
A differentiation strategy allows a company to compete in the market with something other than lower prices. For example, a company may differentiate their candy by improving the taste or using healthier ingredients. For example Yanaya lifestyle is in the highly competitive restaurant industry and instead of going in and offering chicken and chips they were creative with their offerings and decided to offer healthier foods.
2. Better profit margins
A differentiation strategy builds on the unique qualities of a product. Your company may create a list of characteristics it’s products contain that your competitors lack. These characteristics will differentiate your product and you may communicate this through effective marketing and advertising.
3. Better profit margins
When products are differentiated and turned into higher quality products, it offers more opportunity for larger profit margins. For example if you have a good brand that is marketed by a sports figure, it will likely increase brand loyalty because it enhances the value of your brand.
4. No perceived substitutes
A strategy that successfully differentiates may present the idea that there is no other product available on the market to substitute it with. A business may gain an advantage in the market even when there are similar products available because customers will not be willing to replace your product with another one.
Leslie Mupeti is a graphic designer and brand strategy expert. He can be contacted on +263 785 324 230 and [email protected] for feedback.