Which of the following is true of a differentiation strategy? Any irrelevant differentiators are wasted effort. Differentiation Strategy is the strategy that lays emphasis on offering a superior product, on some dimension (s), compared to what competitors are providing. One of our clients provides specialized software development services — and they hire only PhD-level programmers. They have done the trusty old SWOT analysis and listed their strengths and weaknesses. Have you been competing for work that you are more than qualified to perform, only to be underbid by your competition? Typically, a successful firm pursuing a differentiation strategy will: c. use cross-functional development teams. Lee, as usually, great article and advice. … The Buyer’s Journey Is Changing – How Can Government Contractors Adapt? We also know the fastest growing, most profitable firms use strategies and marketing techniques that raise the visibility of their expertise. How do you know you have a good differentiator? We recommend you put each one to the test. That focus, along with the supporting differentiators, will inform your positioning statement. To build a sustainable differentiation strategy you need to build your reputation around those distinctive characteristics and make your expertise exceptionally visible to your target audience. Greater value and a lack of comparable substitutes result in greater loyalty to your firm. A well-executed differentiation strategy is an opportunity for your business to stand out in a saturated marketplace and convince potential customers or clients to buy from you, rather than engaging competitors. Create a brand image, by ensuring better quality, services and customer satisfaction. To successfully pursue this strategy, companies could: a. invest in developing total quality management (TQM) systems and improving marketing effectiveness. , visible expertise plays the single most significant role in driving referrals. Another way of achieving a competitive advantage for companies is through differentiation strategy (Porter, 1980). 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. If you end up with three to five differentiators, that’s great. Commonly recognized differentiated goods include Toyota’s Lexus, Ralph Lauren clothing, and Caterpillar’s heavy-duty earthmoving equipment. In this way, the … to learn more about what sets sales winners apart from runners-up. Product differentiation strategies Lorenzo Cinetto & Alexandra Mason 2. In a focus strategy, a company: c. selects a more narrow group, or niche, of customers on which to concentrate its efforts. Here’s an example of a broad differentiator: adopt a very different business model. Your differentiation strategy is the way in which you make your firm stand out from otherwise similar competitors in the marketplace. Increase in Perceived Expertise. Public speaking, writing blog posts and articles, and publishing books are all effective ways to demonstrate your expertise. The marketplace doesn’t stand still. 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. We also know the fastest growing, most profitable firms use strategies and marketing techniques that, A well-thought-out differentiation strategy and a commitment to implementing your plan will accelerate your firm’s visibility and perceived expertise. Coca-cola. Broad Differentiation Strategy . Reputation is often very difficult to to develop. We conducted extensive research on highly visible experts and the professional services buyers who hire them. A differentiation strategy in retail can be supported by … c. a company has core competencies in production and distribution efficiencies to reduce required inputs. Since you have distinguished yourself from your competitors the prospective client cannot reduce their choice to the dimension of cost alone. If a company does not believe their current provider can solve a problem, they will look for a firm that can. STRATEGIC IMPLEMENTATION: After completing the strategy formulation, SHRM implement the strategy which is involved with five important variables. What Is the Cost of Video Production for the Web. 47. They actually can support a “great people” differentiator with evidence. a. If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer. 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. Differentiation strategy is where a firm will produce and provide products or services with unique features to attract users. 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. With an overall cost leadership strategy, firms need not be concerned with parity on differentiation. Figure 2. We have found that firms that research their target client group tend to grow faster. 17. Not long ago, a prospective client came to us for our marketing expertise. They are buying your services to solve a business problem or seize an opportunity. A. Your competitive advantage will be lost. The point is you need a plan to turn the strategy into a reality. B. And that difference must be valued by your potential clients. Differentiation strategy is one of three Porter’s Generic Strategy; others are cost leadership and focus. Think of it as the DNA of your differentiation strategy. Set the price of the product based on the features of the product and purchasing power of the customer. Hinge can help you develop winning differentiators that will put you on the road to greater visibility. 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). In this research, five dimensions of differentiation strategy were studied including pricing, value-added products, operating procedures, distribution network and customer incentive programmes. A differentiation strategy is key to building your competitive advantage. This is especially true if your differentiator is around specialized expertise. 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 this strategy, the firm picks one or more such dimensions that are regarded as important by the customer’s flock. B. Be different. A differentiation strategy is one in which a: d. firm creates products that have features that customers value and are willing to pay a higher price for. However, a differentiation strategy may also be associated with greater risk. . And even if you were able to pull it off, what’s to keep a competitor from emulating your approach? Many cost saving activities are easily duplicated B. 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. All it takes is someone willing to undercut your lowest price. A differentator is something that makes your business meaningfully different from your competitors and more valuable in the eyes of your target audience. A differentiation strategy involves the creation of products that are of high quality and services that are tailored to meet the customers’ requirements. In a differentiation strategy, a firm seeks to be unique in its industry along dimensions that are widely valued by buyers. 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. You are well on your way to a solid differentiation strategy once you know what sets you apart from your competitors. As indicated, a differentiation strategy serves a broad market. Clients aren’t buying your services because they like them. Or maybe you have been the one underbidding, which leaves you no room for growth or prosperity. The bottom line is they are no different than a slew of competitors that make the same claims. However, the differentiation strategy allows a firm to sustain its current performance in the future to a greater extent than a cost leadership strategy. Differentiation aims at the broad mass market and involves the creation of a product or service that is perceived throughout its industry as unique. 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? One risk of the differentiation strategy is that: c. the firm may offer differentiated features that exceed the customers’ needs. In the end, what is most important is what plays into your target prospects’ selection criteria and decision-making process. When asked if their … firms make an effort to pursue only one of the above generic strategies. To build a sustainable differentiation strategy you need to build your reputation around those distinctive characteristics and make your expertise exceptionally visible to your target audience. If it can pass these three critical checks, it is worth developing into a broader differentiation strategy: Differentiators can’t be fabricated. This is why many firms choose to compete with a focused strategy. Your area of expertise or other differentiator should be broad enough to be enduring and relevant to your clients. One risk of the differentiation strategy is that: c. the firm may offer differentiated features that exceed the customers’ needs. 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). A strong differentiator will provide a competitive advantage for your firm. 35. With so many brands and so many varieties of products and so much advertising noise, it becomes very difficult but ultimately very necessary to differentiate your brand from competition. Consequently, your firm’s expertise is often unseen by the marketplace. A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. In the professional services, expertise is what you sell. Usually, it involves highlighting a meaningful difference between you and your competitors. But there are exceptions. Differentiation strategy is where a firm will produce and provide products or serviceswith unique features to attract users. The list they have cheered is usually a list of givens: good customer service, expertise, quality, reputation, flexible, etc. This is a related point to the appeal of your difference. 47. For example, many firms say they have superior client service, but they do nothing special to make it a reality. Why? 1. 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. Fortunately, it is possible to make intangible expertise visible and real. 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? 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. to be able to charge a premium price for its product. The paper argues that pursuing a differentiation strategy leads to more sustainable financial performance compared to following a cost leadership strategy. Here are some of the benefits. These customers are attracted to the brand and are normally loyal, repeat purchasers. 27. Next you’ll need to tell your story to your target audience. For example they may need help complying with a regulatory requirement or solving a critical strategic challenge. Broad differentiation strategy for many companies often relies on strengths. B. Monitor the new business pipeline. Cost leadership emphasises low cost relative to competitors. Many companies pursue an integrated cost leadership/differentiation strategy, working to lower cost structures while also enhancing their products and services. STRATEGIC IMPLEMENTATION: After completing the strategy formulation, SHRM implement the strategy which is involved with five important variables. Whether your strategy is broad or very focused it must always start by identifying your firm’s differentiators. An oil company develops an innovative refining process that reduces the time required to produce gasoline by 25 percent. Our research into professional services buyers describes what criteria companies use to select one service provider over another. One strong one can even be plenty. Vertical Differentiation. But the only proven way to make your expertise visible and turn it into a credible differentiator is to have a clear strategy. However, once developed, it tends to last a long time, even if the basis for a firm's reputation no longer exists. How about video? Relationships — both social and professional — are still important, but only when there is an awareness of your expertise. Well, have you ever heard a firm claim they have average people? Separate yourself from competitors in a way that is both important and relevant to potential clients. Publications, webinars, workshops, speaking engagements. The narrower and more specialized your expertise, the easier it is to make it visible and defend against potential competitors. Differentiation. According to our most recent study of referral marketing, visible expertise plays the single most significant role in driving referrals. Most prospective clients check you out on your website, so that’s a great place to start. They actually. But you are not done yet. It is rewarded for its uniqueness with a … 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. Let’s say that hourly billing is widespread in your industry. 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. More than one firm can compete successfully based on differentiation in an industry. Build a list of potential differentiators and put them to the three-step test. 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. Thus, Differentiation strategy is being used by all top companies for their products. Help visitors answer the question, is this firm for me? This adds value that other options do not have. And if your firm’s expertise is not visible, for all practical purposes it doesn’t exist. Our research, positioning and branding services — as well as our, Find Your Competitive Advantage: Differentiation, Positioning & Messaging, Referral Marketing for Financial and Accounting Firms Course, The Role of Your Marketing Department — And What You Should Expect From It. Privacy. a. 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. 43. When implementing a focus strategy, the firm seeks: d. to serve the specialized needs of a market segment. It is rewarded for that uniqueness with a premium price. approach in which a firm purposes to establish and market an exclusive product for various consumer segments 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. Previously, he had hired a life-long friend to help with his marketing. This “Visible Expertise” will become the foundation of your, research into professional services buyers. That focus, along with the supporting differentiators, will inform your. Apart from the moral hazard of making stuff up, it is simply too easy for people to see through exaggerated claims. Types of Product Differentiation . Thank you, Kat from 3COTECH, Inc. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The list goes on. The risks of the differentiation strategy include: d. a decision that the differentiated features are not worth the price. This is the often the hardest test of a differentiator. It will also inform your selection of issues to write about to make your expertise more visible to your target audience. You need to make that all-important expertise visible to the outside world. But simply calling something a differentiator doesn’t make it so. Public speaking, writing blog posts and articles, and publishing books are all effective ways to demonstrate your expertise. If your point of distinction doesn’t matter to your prospects, it won’t bring you more business. Differentiation strategy is advantageous for a firm because of the fact that: Which of the following terms refers to the extent to which an increase in the cost of the product makes a buyer less likely to purchase an item? Download a free copy of the book. Provide utility to the customers, by offering such product that perfectly matches their needs and preferences. Also, a strong reputation for expertise is the one factor that can overcome an existing relationship. One of the most commonly-used strategic typologies was developed by Porter (1980; 1985), who identified two generic strategies: product differentiation and cost leadership. Developing and implementing a differentiation strategy is a five-step process. Think of it as the DNA of your differentiation strategy. Differentiators are the building blocks of a differentiation strategy. Our strong reputation for solving the specific marketing challenges faced by professional services firms was more important than their personal relationship. Your email address will not be published. Why? We study the impact of trade liberalization on the international strategy of firms (to export and/or invest abroad as well as the number of products to be produced and exported) when product differentiation is endogenous. c. A firm can achieve and sustain differentiation as long as its price premium is less than the extra costs incurred in being unique. “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. For example, an accounting firm that works exclusively with chain restaurants has a very compelling differentiator to that niche market segment. 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. 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. According to our definition above, this is a differentiation strategy. The message gets better and the brand gets stronger each time you make results-driven adjustments. No special policies. Over time, what was once a distinctive characteristic may be neutralized. This latter approach is often referred to as a focused or concentrated strategy. 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 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. B) earn the highest profit margins of any company in the industry. 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). Developing expertise as a differentiation strategy sounds like a great idea, but there is a catch. The paper argues that pursuing a differentiation strategy leads to more sustainable financial performance compared to following a cost leadership strategy. More than one firm can compete successfully based on differentiation in an industry. 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. 46. Differentiation strategy is one of the most important marketing strategy in today’s business environment. Another way of achieving a competitive advantage for companies is through differentiation strategy (Porter, 1980). Example they may all be perceived as equals in the mind of the following is of... Of their expertise potential differentiators and put them to the outside world plays the single most significant in. 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