Differentiation Strategy Essay

In this paper work we will talk of the t cause about Differentiation Strategy. In contrast to the make up leadership strategy, executing of a differentiation strategy office that measure out is provided to guests by and through the ludicrous features and characteristics of a come withs produces rather than by the alternateest honor. Because tell crossings satisfy clients unique needs or preferences, companies keep charge bountifulness prices for secernate fruits. For the fellowship to be able to outperform its competitors and earn above-average returns, the price charged for the differentiated product must exceed the personify of differentiation.In other words, the price charged must exceed total product cost. Because of this, the differentiated products premium prices generally exceed the low price of the standard product. Companies that follow a differentiation strategy quash or digest on product innovation and develop product features that customers mens urate rather than on maintaining the lowest competitive price (as is the fount for the cost leadership strategy).Products can be differentiated in a number of ship canal so that they stand apart from standardised products outstanding qualityunusual or unique featuresmore responsive customer servicerapid product innovationadvanced technological features engineering science designadditional featuresan image of prestige or statusFor casing Intel uses speed, innovation, and manufacturing techniques as bases of uniqueness. The companys focus throughout its primary and secondary value-creating activities is on establishing the importance of quality, accuracy, speed, and responsiveness. The focus is also on understanding and concourse customers unique preferences and monitoring the speed, reliability, and quality of activities provided by others that interface with the companys inbound and outbound logistics.Differentiating Features That Raise the Performance a User Gets To levy the p erformance a buyer gets from victimisation its Meet the buyers needs and requirements more completely, product/service, a company can mix features and comp bed to competitors offerings. attributes that Give buyers the option to add on or to upgrade posterior as new Provide buyers greater reliability, durability, convenience,product versions come on the market. or ease of use. Give buyers more flexibility to tailor their own products to Make the companys product/service cleaner, safer, quieter, the needs of their customers. or more maintenance-free than rival instigators. Do a better job of shock the buyers future growth and Exceed environmental or regulatory standards. expansion requirements. Source Adapted from Michael E. Porter, Competitive Advantage, (New York Free Press, 1985). However, companies hobby differentiation strategies cannot completely ignore costs and the need for minimal outlay on process-related innovations. A company that successfully implements a dif ferentiation strategy can earn above-average returns even when the five competitive forces are strong. contestation with Existing Competitors Achieving customer commitment means differentiating products in ways that are meaningful to customers. Brand loyalty means that customers will be less(prenominal) sensitive to price increases. As long as the company satisfies the differentiated needs of loyal customers, it whitethorn be insulated from price-based competition.Bargaining top executive of Buyers (Customers) finished meaningful differentiation, companies develop products that are considered unique. This uniqueness whitethorn insulate the company from competitive rivalry and reduce customer sensitivity to price increases (similar to the insulation from rivalry withexisting competitors). By satisfying customer preferences in ways that no competitor can, companies also are able to charge high prices (because there are no comparable product alternatives).Bargaining Power of Suppl iers Because the differentiator charges premium prices, they are somewhat insulated from suppliers price increases (as the differentiator can absorb a greater level of cost increases from powerful suppliers through its higher margins). Alternatively, because of lower price sensitivity by customers, differentiators may be able to raise prices to cover increased supplier-related costs. Because of the differentiators focus on product quality and responsiveness to customer preferences, suppliers also may be forced to provide differentiators with higher quality materials, components, or services. authorization Entrants The principal barrier to entry is customers loyalty to the uniquely differentiated brand. This means that a potential entrant must either overcome (or surpass) the uniqueness of existing products or provide similarly differentiated products at a lower price to increase customer value.Product Substitutes Brand loyalty may effectively insulate differentiated products from su bstitutes. Without brand loyalty, customers may shift to substitutes that offer similar features at a lower price or to products offering more attractive features at the same price.Like the cost leadership strategy, the differentiation strategy also carries risks. Customers may decide that the cost of uniqueness is too high. In other words, the price differential betwixt the standardised and differentiated product is too high. Perhaps the company provides a greater level of uniqueness than customers are willing to pay for.The companys means of differentiation no longer provides value to customers. For instance, what is the value of prestige or exclusivity? And, how long will they last as customers go moresophisticated?Customer learning may reduce the customers perception of the value of the companys differentiation. Through experience, customers may learn that the extra price paid for a differentiated product no longer has the value that it once did.This loss of value through cus tomer learning or changes in customer perceptions can be illustrated by the experiences of IBM. Initially, the IBM name on a personal computer signalled value to customers however, clones soon challenged IBMs pre-eminent position in the PC market. As customers well-read that the clone machines offered similar features at lower prices, the value attached to the IBM brand name diminished and IBMs sales continue to suffer.A quaternary risk is concerned with counterfeiting. Increasingly, counterfeit goods (products that attempt to convey differentiated features to customers at significantly reduced prices) are a concern for many companies using the differentiated strategy.In the event of any of the above, differentiators are challenged to increase value to customers. This may mean reducing prices, adding product features without raising prices, or developing new efficiencies in its value chain of primary and secondary activities.