If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer. Your email address will not be published. Your differentiation strategy is the way in which you make your firm stand out from otherwise similar competitors in the marketplace. Why? Differentiation is a business strategy where firms attempt to gain competitive advantage by increasing ... effective differentiation- the one that will bring the venture the most success-will likely come from just one or two strategies. But that breadth must be balanced. A key risk associated with a differentiation strategy is: A. A strong differentiator will provide a competitive advantage for your firm.Michael Porter, the famous strategist, maintains that there are o… In either case, identifying the "A" positions should be considered an integral part of the organization's workforce strategy. Under the strategy, a firm selects one or more attributes that many buyers in an industry perceive to be important, and uniquely positions itself to meet those needs. 1. 42. Coleman camping equipment offers a good example. Your differentiation strategy is the way in which you make your firm stand out from otherwise similar competitors in the marketplace. What sets you apart from competitors and delivers exceptional value to a segment of the market? How about video? But your website is only the beginning. Differentiation strategy is where a firm will produce and provide products or services with unique features to attract users. Another way of achieving a competitive advantage for companies is through differentiation strategy (Porter, 1980). In strategic marketing and management literature, the differentiation strategy has been based on the premise that improved/innovative outputs will translate into greater demand for the business’s outputs (Buzzell and Gale, 1987). In this research, five dimensions of differentiation strategy were studied including pricing, value-added products, operating procedures, distribution network and customer incentive programmes. a. Apart from the moral hazard of making stuff up, it is simply too easy for people to see through exaggerated claims. , there are certain strategies and techniques that can elevate the visibility of your expertise in the marketplace. First impressions matter. Brand differentiation is a part of any comprehensive marketing strategy that your business can use to distinguish itself from the other offerings on the market. We have found that firms that research their target client group tend to grow faster. The cost difference between low cost competitors & the differentiated business is too high C. Obsessive cost cutting can shrink other competitive advantages D. Cost differences often decline over time. These data will give you a feel for what is possible when a comprehensive differentiation strategy is fully implemented. Differentiation Strategy. firms make an effort to pursue only one of the above generic strategies. Separate yourself from competitors in a way that is both important and relevant to potential clients. Figures 1, 2 and 3 show the average increase in visibility, perceived expertise and new business leads experienced by firms that went through Hinge’s Visible Firm program, which is based on the principles we’ve outlined in this article. A differentiation strategy is key to building your competitive advantage. Coleman camping equipment offers a good example. In fact, the fastest growing firms (those that grow at least 20% year over year) take it a step further and are, three times as likely to use original research in their content marketing strategy, However many differentiators you have, you’ll need a focus. This “Visible Expertise” will become the foundation of your professional services brand. Relationships — both social and professional — are still important, but only when there is an awareness of your expertise. If your firm has extended the differentiation of the workforce strategy to strategic workforce customization, the choice of "A" positions will be linked directly to the system of performance drivers that populate the firm's strategy map. Not long ago, a prospective client came to us for our marketing expertise. However, a different audience segment, such as automobile dealers, would find no value in working with the restaurant specialists. This is especially true if your differentiator is around specialized expertise. As indicated, a differentiation strategy serves a broad market. As indicated, a differentiation strategy serves a broad market. Product Differentiation Strategies in Food sector 1. A differentiation strategy helps a firm to compete by successfully developing and maintaining a unique perception of its product or service that is valued by the customer. Here’s an example of a broad differentiator: adopt a very different business model. In terms of the two competitive dimensions described by Michael Porter, using a differentiation strategy means that a firm is competing based on uniqueness rather than price while continuing to seek to attract a broad market (Porter, 1980). 47. According to our most recent study of referral marketing, visible expertise plays the single most significant role in driving referrals. Commonly recognized differentiated goods include Toyota’s Lexus, Ralph Lauren clothing, and Caterpillar’s heavy-duty earthmoving equipment. This particular strategy focuses on market research data to understand the client and also to identify what the current competitors are doing to fulfill what the market is expecting. Clients aren’t buying your services because they like them. Which of the following is FALSE regarding how a differentiation strategy can help a firm to improve its competitive position relative to the Porter five forces model? They actually. 45. One way is to compete on price, highlighting the similarities you share with your chief competition: “We’re just as good as our competition, but we cost less.”. For example, many firms say they have superior client service, but they do nothing special to make it a reality. If a firm can achieve cost leadership and differentiation simultaneously, the benefits are great because differentiation leads to premium prices, and at the same time that cost leadership implies lower costs. Well, that assumption is partially true. approach in which a firm purposes to establish and market an exclusive product for various consumer segments Differentiation Strategy is the strategy that lays emphasis on offering a superior product, on some dimension (s), compared to what competitors are providing. For example, we know that highly visible experts accelerate the growth of a firm by 1) attracting new leads and 2) making it easier to close them as clients. A. We also know the fastest growing, most profitable firms use strategies and marketing techniques that raise the visibility of their expertise. User-centred products, created by ergonomic product design, can be such a feature [11 ]. The Buyer’s Journey Is Changing – How Can Government Contractors Adapt? Have you been competing for work that you are more than qualified to perform, only to be underbid by your competition? c. a company has core competencies in production and distribution efficiencies to reduce required inputs. Well, have you ever heard a firm claim they have average people? “It should be stressed that the differentiation strategy does not allow the firm to ignore costs, but rather they are not the primary strategic target.” [2] If you could boil the differentiation strategy down to a manageable sound-bite, it would look something like this; differentiation enables a firm to command a higher price. But there are exceptions. Nothing to ensure it actually happens. You may have identified a true and relevant point of distinction, but it is useless without proof. A grocery store chain is converting its local neighborhood stores to warehouses. One of the most commonly-used strategic typologies was developed by Porter (1980; 1985), who identified two generic strategies: product differentiation and cost leadership. Vertical differentiation focuses on differentiation in a product based on quality. Commonly recognized differentiated goods include Toyota’s Lexus, Ralph Lauren clothing, and Caterpillar’s heavy-duty earthmoving equipment. b. Differentiation strategies based on distribution systems are generally unsuccessful. Assuming that your differentiation is one that adds value and is not available elsewhere you are in a position to command higher fees. It’s just not relevant yet. The firm successfully implementing a differentiation strategy would expect all of the following EXCEPT: a. customers to be more sensitive to price increases. They actually can support a “great people” differentiator with evidence. The narrower and more specialized your expertise, the easier it is to make it visible and defend against potential competitors. Differentiation. B. But what about the argument that professional services are “a relationship business”? One danger of the cost leadership strategy is that if there is more than one aspiring cost leader then this can lead to intense competitive rivalry and ultimately destroy industry profitability. No matter the size of your business, or which industry you come from, you should find that a differentiation strategy helps to give you a competitive advantage in a market that’s dominated by bigger, more deeply-ingrained companies. One risk of the differentiation strategy is that: c. the firm may offer differentiated features that exceed the customers’ needs. Brand differentiation is a part of any comprehensive marketing strategy that your business can use to distinguish itself from the other offerings on the market. However, once developed, it tends to last a long time, even if the basis for a firm's reputation no longer exists. If it can pass these three critical checks, it is worth developing into a broader differentiation strategy: Differentiators can’t be fabricated. The risks of the differentiation strategy include: d. a decision that the differentiated features are not worth the price. If your point of distinction doesn’t matter to your prospects, it won’t bring you more business. When implementing a focus strategy, the firm seeks: d. to serve the specialized needs of a market segment. Publications, webinars, workshops, speaking engagements. If you want to stop competing on price alone, it may be time to develop a stronger differentiation strategy. Differentiation is a business strategy where firms attempt to gain competitive advantage by increasing the perceived value of their products or services relative to the perceived value of other firm’s B. If it can pass these three critical checks, it is worth, developing into a broader differentiation strategy, But there are exceptions. This latter approach is often referred to as a. is something that makes your business meaningfully different from your competitors and more valuable in the eyes of your target audience. How? Despite their close relationship, he had fired his friend (and hired Hinge) because his friend could not solve his marketing challenge. When a firm pursues differentiation strategy, it attempts to become unique in the industry, by offering those products and services, which have value to the customers. Vertical Differentiation. This “Visible Expertise” will become the foundation of your, research into professional services buyers. Even if a differentiating statement is true, if you can’t substantiate it with evidence it buyers won’t believe it. While it is likely to have a lower market sharethan a firm following a cost leadership strategy, profits are high due to the perceived product and service differences among customers. The risks of the differentiation strategy include: d. a decision that the differentiated features are not worth the price. Thus, firms that pursue a differentiation strategy at the business level frequently employ an organic structure. Figure 2. We once had a lobbying client that believed their strongest differentiator was their firm’s lack of conflicts of interest. However, a differentiation strategy may also be associated with greater risk. December 23, 2020. These are certainly impressive results and they speak to the pivotal role that a differentiation strategy can play in the growth of a professional services firm. Reputation is often very difficult to to develop. a. We conducted extensive research on highly visible experts and the professional services buyers who hire them. Thus, Differentiation strategy is being used by all top companies for their products. These products and services are used in distinguishing a business from its competitors and if the strategy is successful the firm can create a unique market. b. firms create products that have features customers value and are willing to pay a higher price for. The message gets better and the brand gets stronger each time you make results-driven adjustments. There are some big advantages to using a differentiation strategy. The paper argues that pursuing a differentiation strategy leads to more sustainable financial performance compared to following a cost leadership strategy. The lowest-cost strategy also exposes you to commoditization and a much wider range of competitors, including do-it-yourself options, off-shoring and automation. That focus, along with the supporting differentiators, will inform your. Fortunately, it is possible to make intangible expertise visible and real. Figures 1, 2 and 3 show the average increase in visibility, perceived expertise and new business leads experienced by firms that went through. Public speaking, writing blog posts and articles, and publishing books are all effective ways to demonstrate your expertise. Typically, a successful firm pursuing a differentiation strategy will: c. use cross-functional development teams. It reduces buyer power because buyers lack comparable alternatives. And that difference must be valued by your potential clients. Especially if you can explain — and prove — it in a way that is relevant to your target audience. But what about the argument that professional services are “a relationship business”? In the end, what is most important is what plays into your target prospects’ selection criteria and decision-making process. Porter defines a differentiation strategy as ‘to be unique in its industry along some dimensions that are widely valued by buyers. It entails development of a product or service, that is unique for the customers, in terms of product design, features, brand image, quality, or customer service. Differentiation strategy … Lego It may seem now like a foregone conclusion that The Lego Movie ... Over 34,000 people from over 200 countries submitted videos to win a six-month caretaker job that paid $150,000 AUD in one of the most beautiful tourist destinations in the world, while countless others enhanced their understanding of Queensland as a vacation option. Differentiation Strategy Rather than costs, a firm using the differentiation strategy tries to invest in and develop features that differentiate its goods or services in ways customers value. A strong differentiator will provide a competitive advantage for your firm. One of the most commonly-used strategic typologies was developed by Porter (1980; 1985), who identified two generic strategies: product differentiation and cost leadership. For example they may need help complying with a regulatory requirement or solving a critical strategic challenge. A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy. A well-thought-out differentiation strategy and a commitment to implementing your plan will accelerate your firm’s visibility and perceived expertise. Firms pursuing a differentiation strategy want to be differentiated from competitors: b. only to the point where the features of their products are adequate. So much for a strong brand differentiator. Competitive strategy emphasis on the industry attractiveness, competitive environment, firm's capabilities with opportunities, competitive advantage through distinction, responding to shifts in competitive advantage (Pitts and Lei 2006). Differentiation strategy is one of three Porter’s Generic Strategy; others are cost leadership and focus. In a focus strategy, a company: c. selects a more narrow group, or niche, of customers on which to concentrate its efforts. One of our clients provides specialized software development services — and they hire only PhD-level programmers. Your competitive advantage will be lost. By Lee Frederiksen, Ph.D.  |   They are buying your services to solve a business problem or seize an opportunity. Let’s say that hourly billing is widespread in your industry. Your differentiation strategy is the way in which you make your firm stand out from otherwise similar competitors in the marketplace. As we outline in The Visible Expert, there are certain strategies and techniques that can elevate the visibility of your expertise in the marketplace. We recommend you put each one to the test. To give some concrete examples, think of a $58,000 watch, dresses that look … 47. Over time, what was once a distinctive characteristic may be neutralized. And there are many others. Or maybe you have been the one underbidding, which leaves you no room for growth or prosperity. More than one firm can compete successfully based on differentiation in an industry. Think of it as the DNA of your differentiation strategy. Build a list of potential differentiators and put them to the three-step test. , both buyers and sellers of professional services understand the importance of an existing relationship, but sellers consistently underestimate the role their reputation plays in the final selection. Now, a point of differentiation may be broad-based and set you apart from the rest of the industry or more narrow, appealing to a niche market. Broad Differentiation Strategy . With a Ph.D. in behavioral psychology, Lee is a former researcher and tenured professor at Virginia Tech, where he became a national authority on organizational behavior management and marketing. Then they cheerfully accept their strengths as differentiators. Differentiators are the building blocks of a differentiation strategy. As we outlined in our research report, Inside the Buyer’s Brain, both buyers and sellers of professional services understand the importance of an existing relationship, but sellers consistently underestimate the role their reputation plays in the final selection. A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy. This makes it easier to generate interest and close sales. However many differentiators you have, you’ll need a focus. In any market, a quality hierarchy exists for a particular type of product that ranks products of one kind from a position of low quality to the highest quality product. In strategic marketing and management literature, the differentiation strategy has been based on the premise that improved/innovative outputs will translate into greater demand for the business’s outputs (Buzzell and Gale, 1987). An oil company develops an innovative refining process that reduces the time required to produce gasoline by 25 percent. But simply calling something a differentiator doesn’t make it so. How? Successful differentiation allows a firm to A) gain buyer loyalty to its brand (because some buyers are strongly attracted to the differentiating features and bond with the company and its products). This is a related point to the appeal of your difference. How do you know you have a good differentiator? A. For example, an accounting firm that works exclusively with chain restaurants has a very compelling differentiator to that niche market segment. support a “great people” differentiator with evidence. a. Types of Product Differentiation . Porter’s other way — and a better way — is to stand apart. Hinge can help you develop winning differentiators that will put you on the road to greater visibility. A strong differentiator will provide a competitive advantage for your firm. These customers are attracted to the brand and are normally loyal, repeat purchasers. If a firm can achieve cost leadership and differentiation simultaneously, the benefits are great because differentiation leads to premium prices, and at the same time that cost leadership implies lower costs. Be different. However, once developed, it tends to last a long time, even if the basis for a firm's reputation no longer exists. While it is likely to have a lower market share than a firm following a cost leadership strategy, profits are high due to the perceived product and service differences among customers. Michael Porter, the famous strategist, maintains that there are only two ways to gain a sustainable advantage over your competition. If a firm wants to be the cost leader, then its best bet is to get in first in order to deter the competition. We have found that firms that research their target client group tend to grow faster. Coca-cola. Research will help you align your firm’s offerings with the desires and preferences of potential clients. A differentiation strategy is focused on elevating the presence of a business within a marketplace and highlighting the things that make it different from similar competitors. The list they have cheered is usually a list of givens: good customer service, expertise, quality, reputation, flexible, etc. Developing and implementing a differentiation strategy is a five-step process. He left academia to start up and run three high-growth companies, including an $80 million runaway success story. Both models have a unique symmetric mixed-strategy equilibrium. And if your firm’s expertise is not visible, for all practical purposes it doesn’t exist. Your positioning statement is a short statement that describes what your firm does, who it does it for and why a prospect should choose you. In this strategy, the firm picks one or more such dimensions that are regarded as important by the customer’s flock. One of the most powerful bases of product differentiation is the reputation of a firm and of its products. The differentiation strategy is one of the three main marketing strategies, along with the low-cost provider strategy and the focus strategy. 27. In our research of professional services firms, we found another reason to reject client service as a differentiator — buyers don’t even consider it as a selection criterion. A differentiation strategy involves the firm creating a product or service, which is considered unique in some aspect that the customer values. When implementing a focus strategy, the firm seeks: d. to serve the specialized needs of a market segment. Of course, developing a broad-based differentiation strategy, in which your firm is substantially different from your industry as a whole, is hard to achieve. As we outline in. B. We conducted extensive research on highly visible experts and the professional services buyers who hire them. Good business relationships are certainly helpful. An example of a firm that has achieved success in both a cost advantage and differentiation is McDonald. Ce type de stratégie aide l'entreprise à soutenir la concurrence en entretenant une perception unique - et appréciée des clients - de son p roduit ou de son service. In a focused strategy you narrow your appeal to a niche audience. Previously, he had hired a life-long friend to help with his marketing. is superior to the one of other firms’ contributes to its performance” (Buzzell& Gale, ... differentiation strategy in the Kenyan tea industry and its effect on market share of tea export firms. Subscribe to Our BlogProfessional Services Marketing Today, Branding and Marketing for Professional Services, 1851 Alexander Bell Drive, Suite 350, Reston, VA 20191. is the way in which you make your firm stand out from otherwise similar competitors in the marketplace. 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