Differentiation strategy is a collection of cognitive and emotional features, different people with different functions and structural differences between different parts of the organization.
Differentiation strategy is also known as diverse marketing or qualitative leadership strategy. It involves finding such characteristics that distinguish a particular company (products, services) from another and are important for the chosen segment of potential customers. The company strives to be unique (or convince buyers of uniqueness) in a given industry. It meets the needs of the recipients, those who prefer branded products. They are less sensitive to price.
Effects of application
Thanks to this strategy it is possible to obtain and maintain competitive advantage. It limits the possibility of entry to the sector concerned. Customers may not cause lowering of prices, because there are no other products or services of such properties.
Before taking a decision about choosing this strategy managers need to analyze the situation of the company and assess whether the project is actually reasonable. Differentiated product need not to be immediately directed to all segments, managers can select one or more. If the strategy is effective, costs incurred in the implementation of this strategy are offset by higher prices.
The conditions for the success of the differentiation strategy are:
- must stand out,
- must be cost-effective,
- must defend against the forces of competition.
- Mayhew, B. W., & Wilkins, M. S. (2003). Audit firm industry specialization as a differentiation strategy: Evidence from fees charged to firms going public. Auditing: A Journal of Practice & Theory, 22(2), 33-52.