The right differentiation strategy can be essential for making sure that your company stands out from its competition
Today's economy is more competitive than ever before, with a vast array of products and services vying for attention from customers. In most industries, multiple companies are offering similar products or services to the same target market. In such a competitive environment, how can any one company expect to stand out from its rivals? The answer is deceptively simple: those companies need an effective differentiation strategy that distinguishes them from their competitors.
In this post, we'll explain business differentiation strategies and why they work. In addition, we'll examine five of the most effective strategies that leaders can use to give them a competitive advantage over other companies in their industry.
What is a differentiation strategy?
A differentiation strategy is used by companies to increase engagement with target customers, by distinguishing their products and services from competitor offerings. These strategies enable companies to focus on their unique value proposition and identify unique selling points for customers. When developing this strategy, the company must understand several key factors:
The strengths and weaknesses of their business model and its products and services
The needs and desires of its potential customers
The unique value that their products and services can provide to meet those customer needs
Differentiation strategies come in two main varieties, depending on the nature of the company's target audience. A focused differentiation strategy targets a narrow market and usually involves emphasizing specific product features and benefits to appeal to a certain niche audience. A broad differentiation strategy, on the other hand, attempts to distinguish a company's offerings from its rivals' in a way that appeals to the broadest possible customer base.
But what is the overall purpose of differentiation and how can it benefit the companies that use it effectively to distinguish themselves from their rivals? Read on!
How can an effective differentiation strategy benefit your company?
There are many clear benefits for companies that employ sound differentiation strategies to separate themselves from their rivals. Without a way to distinguish one business from another, the success of any company would be largely dependent on luck. With an effective differentiation strategy, however, companies can successfully engage with their target audience by demonstrating that their offerings don't just meet customer needs, but can do so in a way that their competitors can't.
Differentiation strategies enable companies to create unique competitive advantages
Companies can increase sales and raise brand awareness by differentiating themselves from their rivals
Successful differentiation can boost brand loyalty and enhance customer retention efforts
Differentiation can enable companies to distinguish their products even when those products aren't much different to a rival's offerings
With the right strategy, companies can even secure higher price points, by focusing on unique selling points that make their product superior to lower cost alternatives
Another great benefit of a differentiation strategy is that there are different factors that can be used to distinguish one company from another. One differentiation strategy might focus on so-called “vertical differentiation,” relying on customers' ability to use measurable factors like price or quality to identify their preferred products and services. Alternatively, companies can rely on “horizontal differentiation” by appealing to customers' subjective personal preferences. There are even strategies that blend these two types of differentiation.
Five differentiation strategies that work
To better understand how differentiation strategy works, it's helpful to explore some of the different approaches that companies can use to distinguish themselves from their competitors. Below are five of the most common strategies that businesses employ:
Emphasis on innovation
One common marketing differentiation strategy used by many companies is to focus attention on how their products or services are more innovative than their competitors. For example, some companies have created effective marketing campaigns that appeal to consumers' environmental concerns by focusing attention on their products' energy efficiency. Others distinguish themselves by emphasizing the ways in which their innovative services are able to solve customers' unfulfilled needs.
Elon Musk's Tesla is one example of a company that relied on innovation in its differentiation strategy to target its niche market of electric vehicle buyers. Instead of opting to pursue a low-cost approach, Tesla distinguished its products from other EV makers by emphasizing superior technology, unique product design, safety, and customer service that includes a purchasing process that bypasses traditional car dealers.
Focus on individual experience
Another way to differentiate your company from its competitors is to emphasize the unique experience that customers can enjoy from doing business with you. Many times, this strategy focuses on the retail end of the buying experience - superior customer service, satisfaction guarantees, or digital purchasing and support options.
Amazon is one example of a company that has successfully used customer experience to differentiate itself from its competitors. The eCommerce behemoth has used technology, warehouse logistics, and unmatched delivery capabilities to meet modern customers' shopping needs. Today, people around the world know that they can easily find products on the Amazon website, make purchases simply and safely, and have their goods delivered to them quickly.
Generating an emotional response
When it comes to creating an emotional response to differentiate a brand from its competitors, few companies have done it better than Apple. The tech firm has managed to create a level of intimacy with its customers that causes them to regularly wait in line to buy the latest iPhone or iPad. For years, Apple has promoted the buying and ownership of its products as an emotional and sensory experience and coupled that experience with a relentless focus on customer service and support.
Presentation of brand
The brand presentation approach is another common differentiation strategy employed by successful companies. Some companies achieve this by using mascots - the Jolly Green Giant of vegetable fame, for example. Others might rely on catchy jingles, logos, or other communication and branding tools. A company like Cadbury's can even go to great lengths to associate itself with a single holiday in an attempt to build brand awareness and loyalty.
Of course, price competition is a common way for some companies to differentiate themselves from competitors. It is important to note, though, that this does not always require a company to market itself as the lowest-cost option. A firm that offers premium-quality products or services may want to differentiate itself based on that truth - though that often requires a more focused differentiation strategy that targets a niche market of higher-end customers. Starbucks is a good example.
When it comes to low-cost price competition as a differentiation strategy, no company really does it better than Walmart. The big box store has become a global leader by focusing on giving its customers the lowest prices on goods. Its “Every Day Low Prices” pricing strategy forms the foundation of the company's effort to present itself as the company that saves you money so that you can live a better life.
Stand out from the crowd
It is vitally important for companies to find ways to distinguish themselves and their offerings from all the other companies and products in today's competitive marketplace. One of the most important tools for achieving that goal is the effective use of a sound product or service differentiation strategy. Business leaders and managers need to understand how these strategies work and the benefits that they can provide if they want to ensure that their companies continue to enjoy competitive advantages against their rivals.
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