If cost leadership is not a feasible option, but the firm is able to differentiate its products along some attributes that customers’ value, and the cost of doing so is lower than the extra revenue envisaged, then differentiation may be the appropriate strategy to pursue.
Differentiation aims at the broad mass market and involves the creation of a product or service that is perceived throughout its industry as unique.A differentiation strategy is to be unique in its industry along some dimensions that are buyers widely value. Differentiation is rewarded for its uniqueness with a premium price. Firm that achieve and sustain differentiation are an above-average earners in the industry if price premium exceeds the extra costs incurred for attaining uniqueness. The reason of the differentiation strategy needs that firms choose attributes to differentiate from the rivals’.
Porter considers differentiation not on the basis of the product’s attributes per se but in terms of the ability to charge higher prices and can be associated with design or image of the brand, current technology, features of the product, network of the dealers, or customer service.
A firm is said to follow a differentiation strategy when it outperforms its competitors in offering the product with special features its competitors are neither able nor willing to offer. Customers perceive a product or service differentiated if it provides them the need satisfaction they value, and are prepared to pay more for such need satisfaction.
When the customers distinguish a product or service by reason of its special features and attributes from all other products/services of its type available in the market, the product or service is said to be a differentiated product or service.A differentiation firm can charge a premium price, gain new customers and command customers’ loyalty for the uniqueness of its product that the customers value.
In order to pursue a differentiation (value added) strategy, an accurate picture of the target market will have to be obtained to ensure that there are sufficient ways in which to differentiate the product, and that the marketplace can be subdivided -and is willing to pay for the differentiation. An effort will then have to be made to avoid imitation, and this may involve a regular redefinition of the basis of differentiation. For the same reason, it would be desirable for the differentiation to be based on a mix of features and activities rather than a simple product feature or service, and for it to involve any parts of the value chain. Added protection from imitation may also be possible by linking into the value chains of suppliers and buyers.
Differentiation, whether innovation -or marketing-based, is more appropriate in dynamic industry environments, in which it can help to avoid, at least in the short run potentially more costly forms of competition such as price cuts. However, as it often involves new technologies and unforeseen customer and competitor reactions, it also contributes, in turn to environmental unpredictability.
As far as staffing and administrative requirements are concerned, differentiation requires the use of experts, and the establishment of mechanisms to facilitate the coordination of these experts, who may work in different functional departments, or may come from outside of the company.
Differentiation aims at the broad mass market and involves the creation of a product or service that is perceived throughout its industry as unique.A differentiation strategy is to be unique in its industry along some dimensions that are buyers widely value. Differentiation is rewarded for its uniqueness with a premium price. Firm that achieve and sustain differentiation are an above-average earners in the industry if price premium exceeds the extra costs incurred for attaining uniqueness. The reason of the differentiation strategy needs that firms choose attributes to differentiate from the rivals’.
Porter considers differentiation not on the basis of the product’s attributes per se but in terms of the ability to charge higher prices and can be associated with design or image of the brand, current technology, features of the product, network of the dealers, or customer service.
A firm is said to follow a differentiation strategy when it outperforms its competitors in offering the product with special features its competitors are neither able nor willing to offer. Customers perceive a product or service differentiated if it provides them the need satisfaction they value, and are prepared to pay more for such need satisfaction.
When the customers distinguish a product or service by reason of its special features and attributes from all other products/services of its type available in the market, the product or service is said to be a differentiated product or service.A differentiation firm can charge a premium price, gain new customers and command customers’ loyalty for the uniqueness of its product that the customers value.
In order to pursue a differentiation (value added) strategy, an accurate picture of the target market will have to be obtained to ensure that there are sufficient ways in which to differentiate the product, and that the marketplace can be subdivided -and is willing to pay for the differentiation. An effort will then have to be made to avoid imitation, and this may involve a regular redefinition of the basis of differentiation. For the same reason, it would be desirable for the differentiation to be based on a mix of features and activities rather than a simple product feature or service, and for it to involve any parts of the value chain. Added protection from imitation may also be possible by linking into the value chains of suppliers and buyers.
Differentiation, whether innovation -or marketing-based, is more appropriate in dynamic industry environments, in which it can help to avoid, at least in the short run potentially more costly forms of competition such as price cuts. However, as it often involves new technologies and unforeseen customer and competitor reactions, it also contributes, in turn to environmental unpredictability.
As far as staffing and administrative requirements are concerned, differentiation requires the use of experts, and the establishment of mechanisms to facilitate the coordination of these experts, who may work in different functional departments, or may come from outside of the company.
The profits of a
differentiator firm come from the difference in the premium price charged and
the additional cost incurred for providing the differentiation. The success of
a differentiation firm lies in the extent the firm is able to offer
differentiated product/service by maintaining a balance between its price and
costs. The firm may fail if the customers cease to keep interest in the
differentiated features, or are not willing to pay premium price for these
features. For example, Orient fans offers
premium ceiling fans based on product innovation and superior technology. In
the Computer industry, Apple Computers in 1992 enjoyed
competitive advantage based on differentiation. Apple had a unique proprietary operating system and
a strong brand name, both of which enabled the company to differentiate itself
from its competitors.
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