A differentiation strategy involves the firm creating a productservice, which is considered unique in some aspect that the customer values because the customers needs are satisfied. The effects of cost leadership strategy and product differentiation strategy on the performance of firms. Differentiation strategies have strengths and weaknesses. At the same time, a firm can clearly improve or erode its position within an industry through its choice of strategy.
Advantages and disadvantages of product differentiation. In this strategy, there is an ability to defend against newcomers, because for. In the case of focus differentiation, one advantage is that very high prices can be charged. While having a quality product is good, being able to develop and articulate the qualities or features that clearly make one product better. Vertical differentiation refers to products that fall on a scale from best to worst, highest to lowest, impacting the overall functionality of the item. Disadvantages of product differentiation a product differentiation generally reduces the degree of competition in the market. The aim of this essay was to analyze competitive advantage as the achievement of superior performance through differentiation and lowest delivered cost. Understand how economies of scale help contribute to a cost leadership strategy. Product differentiation occurs on two clear levels. A critique of porters cost leadership and differentiation. This differentiation strategy involves using the characteristics of the product you market to differentiate from your competitors.
Hashem valipour, hamid birjandi and samira honarbakhsh 2012. Cost leader a cost leader is where the company has decided to create the cheapest product on the market. The most revolutionary development in the american automobile market then was the popularity of. A differentiation strategy offers important advantages and disadvantages for firms that adopt it. Product differentiation is economically advantageous to a company. It reduces competition amongst existing firms because consumers are reluctant to substitute one product for.
They are available to any consumers as long as the items are online. Michael porter, believed that the basis for this advantage falls under 3 base strategies of cost leadership, differentiation and focus. Therefore, small businesses frequently attempt to differentiate two or more sets of customers with unique needs which might be met with the companys products or. 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. As such, a differentiation strategy would provide greater scope for these organizations to produce products with more valued, desirable features as a means of coping with such demands. This dual nature is reflected in its appearance in two different parts of typical strategy textbooks. Eachstakes outadifferent market position a broad crosssection gi of buyers gi iii a narrovlf buyer segment or market niche overall lovvcost provider strategy broad diherentiation strategy focused lovvcost strategy lovlfercost differentiation type of competitive advantage being. Pair using designated partners, nearby neighbors, or a desk mate, students pair up. Competitive advantage essay sample new york essays. Below we illustrate a few examples in relation to an often differentiated productwomens handbags. A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. The differentiation can be about colors, packaging, shapes, flavors, etc.
Know the advantages and disadvantages of a cost leadership strategy. The use of differentiation strategy by libraries to gain. Differentiation and its role in competitive advantage. Differentiation strategy is one of michael eugene porters business management strategies, he formulated after observing that organisations, nations, states and regions can survive in business competition by either lowering the cost, differentiate products and.
As with a focused lowcost strategy, narrow markets are defined in different ways in different settings. Horizontal differentiation has similar products that vary in ways that are often. Think the teacher provokes students thinking with a question or prompt or observation. The corporate strategy in these cases is about the basic direction of the firm as a whole. Differentiation advantage low price strategies high nonprice strategies market segmentation low mass market high many mark ets distinctive competences manufacturing and buying marketing. The generic of differentiation strategy involves creating a market position that is perceived as being unique industry wide and that is sustainable over the long run. Failing to emphasize cost advantages that can be kept proprietary or that relegate rivals to playing catchup. The big risk when using a differentiation strategy is that customers will not be willing to pay extra to obtain the unique features that a firm is trying to build its strategy around. This research work therefore, focused on how competitive advantage can be achieved through product differentiation strategy and. Each generic strategy offers advantages that firms can potentially leverage to enjoy strong performance, as well as disadvantages that may damage their performance. The study further established that there is a strong.
Effectiveness of differentiation strategy on business. Indeed, these firms often price their wares far above what is charged by firms following a differentiation strategy figure 5. The effect on the field of strategy is an increase in importance of areas such as corporate social responsibility as well as providing ammunition for the need for organizations to take an even. The focus strategy is one of three generic strategies that professor porter created at the time. Choose of one puts constraints on using the second.
This presentation draws on ideas from professor porters books and articles, in particular, competitive strategy the free press, 1980. Product differentiation means that your product has one or more distinct attributes that separate it from competitors. A focused differentiation strategy aims at securing competitive advantage a. A market consists of individual customers who have unique product wants and needs. Companies pursue various marketing strategies to attract customers to them rather than to competitors. Although some few studies have been done on the relationship between product differentiation strategies for competitive advantage, information on the strategies used in kenya is ostensibly missing in the literature. Consider what you want to accomplish and who your demographics are.
For that purpose, a differentiation strategy is chosen as the topic for the thesis. Differentiation global marketingschrage 15 158 competitive advantage achieved when there is a match between a firms distinctive competencies and the factors critical for success within its industry two ways to achieve competitive advantage lowcost strategy product differentiation global marketingschrage 15 159. Differentiation strategies make it easier to focus your marketing efforts and create raving fans, but it can exclude some buyers. Porter distinguished between two types of strategies.
Pdf fostering a competitive differentiation strategy for. A critique of porters cost leadership and differentiation strategies 40 strategy can bring about in gaining a low cost position, as porter 1985, p. Competitive strategy, then, not only responds to the environment but also attempts to shape that environment in a firms favor. Without one or more of these advantages, the strategy can easily be mimicked by competitors. Advantages and disadvantages of differentiation open. A firm has a competitive advantage when it implements a strategy competitors are unable to duplicate or find too costly to imitate. By creating, marketing, and selling a product or service intended for a niche market, then it becomes possible to become the recognized expert in that market better than those. Learning point associates differentiation through flexible grouping. In this post im going to be focusing on differentiation, but it is important to understand why differentiation is a strategy and how it relates to competitive advantage.
The students should take a few moments just to think about the question. The advantages of differentiated marketing your business. Advantages and disadvantages of the focused strategies. Every brand is built on a product i include services here as well. More bus companies adopted differentiation strategy than cost leadership strategy, focus strategy and integrated strategies. For example, following the differentiation focus strategy, betterment the largest automated investing service clearly has a strong advantage by focusing on a. As a result, especially in the early stages of the brand building process where not enough emotional connections have been built, productbased. Product differentiation strategy a good product differentiation strategy may gain brand loyalty, which is paramount to any successful business. In this strategy, valuable differentiations in costumers products and services decrease costumers sensitivity to the price.
Horizontal differentiation is when products are differentiated according to a specific feature. Product differentiation affects both rivalry restraint and competitive advantage. Disadvantages of product differentiation, managerial. Porters generic competitive strategies ritika tanwar. A differentiation strategy allows companies to communicate the unique features of their products and create a niche for the product. In the case of differentiation, a key advantage is that effective differentiation creates an ability to obtain premium prices from customers executing a differentiation strategy. Thus a differentiation strategy helps create barriers to entry that protect the firm and its industry from new competition. There could be small businesses or involved in a single business or a large, complex and diversified conglomerate with several different businesses. The major purpose of this study is to explore the relationship between market. With the use of his generic strategy model, a firm, understanding where its competitive advantage lies, can then formulate and implement an. Firms that compete based on price and target a broad target market are following a cost leadership strategy. Differentiation strategy, as the name suggests, is the strategy that aims to distinguish a product or service, from other similar products, offered by the competitors in the market. Thanks to ecommerce, goods and services have become more mobile and digitalized.
Product differentiation is important in todays financial. Product differentiation being the most commonly used one of these two strategic typologies spencer, joiner, and salmon, 2009. An organization can be confident that its strategy has resulted in one or more useful competitive advantages only after competitors efforts to duplicate its strategy have ceased of. Success stories in the business world requires product differentiation or low prices or a combination of both, but the firm has to be able to know which strategy best suits it in its industry.
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