Video Transcript: Differentiation Strategies

Differentiation strategies are attractive whenever buyers needs and preferences  are too diverse to be fully satisfied by a standardized product or service. The  essence of a broad differentiation strategy is to offer unique product or service  attributes that a wide range of buyers find appealing and worth paying for. A  company attempting to succeed through differentiation must study buyers needs and behavior carefully to learn what buyers think has value and what they're  willing to pay for. Then the company must include these desirable features to  clearly set itself apart from rivals lacking such product or service attributes.  Successful differentiation allows a firm to command a premium price, and/or  increase unit sales because additional buyers are won over by the differentiating features. And/or gain buyer loyalty to its brand, because some buyers are  strongly attracted to the differentiating features and bond with the company's  products. Companies can pursue a differentiation strategy from many angles,  like a unique taste like Red Bull or Doritos, multiple features like Microsoft Office or the Apple iPhone, a wide selection of one stop shopping, like the Home Depot or amazon.com superior service such as Ritz Carlson or Nordstrom, engineering design and performance like Mercedes Benz or BMW, product reliability like  Whirlpool or Bosch, quality manufacturing Like Michelin or Toyota and  technological leadership like 3m. A uniqueness driver is a value chain activity or  factor that can have a strong effect on customer value and creating  differentiation. Differentiation opportunities can exist in activities along the  industry's value chain, and particularly in activities and factors that meaningfully  impact customer value. Such activities are referred to as uniqueness drivers,  and have a high impact on differentiation, rather than on a company's overall  cost position. Ways that managers can enhance differentiation through the  systematic management of uniqueness drivers include the following, seeking out high quality inputs, striving for innovation and technological advances, pursuing  continuous quality improvement, emphasizing human resource management  activities that improve the skills, expertise and knowledge of personnel, and  improving customer service or adding additional services. While it's easy  enough to grasp that a successful differentiation strategy must offer value in  ways unmatched by rivals. A big issue in crafting a differentiation strategy is  deciding what is valuable to customers. Typically, value can be delivered to  customers in three basic ways. First, including product attributes and user  features that lower the buyer's costs. Second, incorporate tangible features that  improve product performance, and third, incorporate intangible features that  enhance buyer satisfaction in non economic ways. Differentiation strategies tend to work best in market circumstances where buyers needs and users of the  product are diverse. There are many ways to differentiate the product or service  that have value to buyers. Few rival firms are following a similar differentiation  approach, and technological change is fast paced, and competition revolves  around rapidly evolving product features. Differentiation strategies can fail for 

any of several reasons. A differentiation strategy keyed to a product or service  attribute that are easily and quickly copied is always suspect. Differentiation  strategies can also falter when buyers see little value in the unique attributes of  a company's product, and overspending on efforts to differentiate is a strategy  flaw that can erode profitability a low cost provider strategy can always defeat a  differentiation strategy when buyers are satisfied with a basic product and Don't  think extra attributes are worth a higher price