While it is likely to have a lower market share than a firm following a cost leadership strategy, profits are high due to the perceived product and service differences among customers. It is because once a consumer is satisfied with a few pr… The intent is to preserve the existing product line, continuing with presence For example, your product line could have various flavors, colors and styles. The advantage of differentiation is when companies offer better products and services than their competitors. Advantages of Differentiation. B)few rivals are pursuing a similar differentiation approach. From Porter's point of view, strategic management should be interested in building and maintaining a competitive advantage. Another adv… Question: What Are The Pros And Cons Of A Broad Differentiation Strategy? With a stellar product that demands top dollars, you also don't need to sell as much product to generate high revenue and profits. 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" [Image missing in original]). At the core, all differentiation strategies attempt to make a product appear distinct. In contrast, a company with more than 100 flavors of ice cream can be known for having a flavor for everyone. A broad differentiation strategy is generally not suitable for attaining a competitive advantage when A)buyer needs and preferences are too diverse to be fully satisfied by a standardized product. B) The marker of good management is a solid strategy that focuses on customer value above all else. A Focused Differentiation Strategy Differentiation depends on the right metrics. Advantages of Product Differentiation . If you succeed, you can make up for these costs in higher revenue, but the downside risks of steep losses are present. When a price or trade war happens, or there is a downturn in the local economy, it is the companies with the lowest cost of doing business that will have the greatest chance at survival. W. L., & Jones, Gareth. Businesses looking to build a broad or focused differentiation strategy will need to produce or design extremely unique or distinctive products or services that create increased value for the consumer. There are advantages and disadvantages to differentiating your products, no matter which type of differentiation best suits your company. Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. Horizontal Differentiation. But more important and effective than this is how Nike makes its customers feel. Using a clear strategic profile as a focused differentiator, Porsche was very successful and very profitable. With multiple price points in products, you can have shoppers of all budgets covered, pulling revenue from competitors. It can be a struggle to identify true cost leaders in any industry. 2. One customer might prefer red over black, another might choose strawberry over mint. Cost Leader. This enables a firm to enjoy strong profit margins. E.g. Broad differentiation is a kind of differentiation that range from products to services. R. (2007). The strategy of the broad differentiator was the teams choice, because we thought that it would be the most difficult to accomplish, would take the most time, and provide us all with a well rounded learning experience because we would be able to learn how to be successful in both the low and high tech segment with our products instead of just one of the segments. These are the target market (broad or narrow) and competitive advantage (low cost or differentiated). New Product Pricing Vs. Market-Penetration Pricing, BusinessDictionary.com: Product Differentiation, Washington State University: A Definition of Advertising. Competitive Strategy is about applying offensive or alternatively defensive actions to create a advantageous position within marketplace, with a purpose to deal with issues effectively with competitive forces in addition to come up with a much better return on investment.. Differentiation in business refers to the act of marketing a particular product or service in a way that makes it stand out against other products or services. Consumers of differentiated products are not as sensitive to price changes, therefore, the manufacturers can increase their prices. Economics Web Institute: Product Differentiation, More For Small Business: Product Differentiation Helps You Build Competitive Advantage. Part of vertical differentiation is the range of quality of the products produced. It will discuss mergers and acquisitions of The Kroger Company (Bethel University, 2017). A) Narrow market leadership B) High cost versus low cost C) Focused strategy D) None of these 1. A concern with a product differentiation strategy is the investment you typically have to make to produce or acquire a top-notch 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" [Image missing in original] ). Up to four multiple pays for customers because of how they work or how the products perform, but how brands think to people: “If you want to steal share in this crowded market, your brand must recognize that a consumer is a … Everything becomes easier when your strategy is narrowly focused on a single market segment. Differentiation Strategy Prof. (Dr.) Nitin Zaware Prof. (Dr.) Nitin Zaware 1 2. The policies to appeal to broad markets can be contrasted with strategies that target a relatively narrower niche of potential customers. Focused cost leadership is the first of two focus strategies. Expert Answer . Price Segmentation Vs. A distinguished, better-quality product also offers greater profit margin opportunities than selling with a low-cost or alternative approach. The Disadvantages of Differentiated Marketing. The company analyzes the specific product and compares it with similar products offered by competitors. DIFFERENTIATION STRATEGY In this paper work we will talk about Differentiation Strategy.In contrast to the cost leadership strategy, implementation of a differentiation strategy means that value is provided to customers through the unique features and characteristics of a company's products rather than by the lowest price. Additionally, by going for product differentiation rather than a low cost, you effectively eliminate budget-conscious buyers who can't afford your higher prices. There are some big advantages to using a differentiation strategy. Because of this, your marketing, sales and service costs are often higher as well. You do not have to compete on price alone.Since you have distinguished yourself from your competitors the prospective client cannot reduce their choice to the dimension of cost alone. For a focus strategy to be successful, businesses and brands must actively listen when hearing about the needs and concerns of their targeted demographic. This problem has been solved! Competitive Advantage cannot be fully understood by considering an organisation in general. Differentiation strategies have several advantages that may help you develop a unique niche within your industry. Because customers perceive the unique customer service or product features as special, a company following a differentiation strategy is typically less sensitive to price fluctuations than the general market. It will also reduce the speed to which an organization is able to adapt to changing circumstances. Kokemuller has additional professional experience in marketing, retail and small business. Product Segmentation, Privacy Notice/Your California Privacy Rights. While an advantage of this is that it allows you to capitalize on a wide range of consumer quality preferences, it also can be a disadvantage. Differentiation strategies are attractive whenever buyers’ needs and preferences are too diverse to be fully satisfied by a standardized product or service. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. The approach relies on the company’s business model and value chain, which satisfy customers partly through personalized customizations, such as … When you differentiate the quality of your products, you are able to differentiate the cost as well, another aspect of vertical differentiation. The differentiation strategy should not be mistaken for providing unique products simply for the sake of being unique; rather the differentiation should be tied to customer demand or willingness to pay. Porter asserts that a business model can’t offer the best product or service at the lowest price and maintain a sustainable competitive advantage. Power Point Set #5: Business Level Strategy: Cost and Differentiation Advantage Business Strategy and Competitive Advantage A business-level strategy is an integrated and coordinated set of commitments and actions designed to provide value to customers and gain a competitive advantage by utilizing core competencies in specific individual product markets. 1. Another implication of product differentiation is that very often, it brings brand loyalty into the picture. Finding companies that have a sustainable advantage through their differentiation strategy is something that in time can not be copied or imitated. And the sales team can use them to demonstrate the product's competitive advantage. Differentiation Strategy. Here are some of the benefits. Especially in a tough economy, you have to really succeed with more affluent customers if you price your products above what a significant segment of the population can afford. in one or more useful competitive advantages only after competitors’ efforts to duplicate its strategy ... differentiation strategies, and (3) focus strategies. differentiation advantages can be ... this volume provides a broad coverage of the field and an accessible framework for investigating its subject matter. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. 1. Cost leadership strategy and differentiation strategy share one important characteristic: both are used to attract customers in general. Here are some of the benefits for companies using a broad differentiation strategy: Ability to apply premium pricing to products or services deemed by consumers as different If a firm has a product that is high in demand the firm can price it higher. Having low-quality products in your catalog can earn your brand a reputation of poorly made products. He holds a Master of Business Administration from Iowa State University. I previously touched upon Michael Porter’s generic cost leadership strategy here. By successfully delineating your product's uniqueness, and the benefits of such features, you can make it easy for your customers to perceive the value. This strategy is concentrated on a broader segment of the total market. earn… He has been a college marketing professor since 2004. Cost Leadership. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry. A focused cost leadership strategy requires C)products of rivals are weakly differentiated. Pros and cons of differentiated instruction. advantages and disadvantages of differentiation strategy pdf. 2. Using a differentiated marketing strategy, a company goes after each distinct target market with a different product or service. Cost Leadership and Differentiation. Product differentiation is economically advantageous to a company. Problem 76SAQ from Chapter 5S5.3: What are the pros and cons of a broad differentiation strategy? Marketing is intended to help convey to target customers your brand and your product's unique value proposition. In this strategy, the company will pursue to gain a competitive advantage by providing unique brand of sensors. Original Strategy: The strategy employed by Andrew’s management is that of a broad differentiator by maintaining presence in every market segment. Let's explore these 3 Small Business Competitive Advantage Strategies; Cost Leadership, Differentiation Strategy and Focus Strategy. 4. ADVANTAGES: The differentiation would act as a barrier to the business entrants; The company could set a higher price to suppliers; and; Reducing the bargaining power of the buyer because differentiated products can’t be easily copied. Each generic strategy offers advantages that firms can potentially leverage to enjoy strong performance, as well as disadvantages that may damage their performance. Differentiation strategy 1. Up to four multiple pays for customers because of how they work or how the products perform, but how brands think to people: “If you want to steal share in this crowded market, your brand must recognize that a consumer is a … What Internal & External Factors Affect Market ... What Internal & External Factors Affect Market Segmentation? While having a quality product is good, being able to develop and articulate the qualities or features that clearly make one product better than the competition is important to attracting value-oriented consumers. But more important and effective than this is how Nike makes its customers feel. Higher margins make it easier for you to cover fixed costs and operate a profitable business. A disadvantage is that you will have higher production costs but not necessarily an increase in revenue from product to product, since they are likely priced the same. Focus the differentiation strategy on the quality and design of your products and gain a competitive advantage in the market without decreasing their price. Not having to compete with commodity products on price leads to higher profit margins. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. 1. When vertically differentiating your products, you can have some products of high quality, some of mid-level quality and others of low quality. Product differentiation occurs on two clear levels: vertical and horizontal. After comparing, the company creates a list of characteristics its products contain that the competition’s products lack. With a product differentiation strategy, though, explaining and demonstrating why your brand is the best option and value is key. One strength of a differentiation strategy is that it builds on the unique qualities in a product. While an advantage of this is that it allows you to capitalize on a wide range of consumer quality preferences, it also can be a disadvantage. Benefits of creating a differentiation strategy. With this strategy, the objective is to become the lowest-cost producer in the industry. 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. Two types of differentiation strategy: Broad differentiation strategy: presents a view of differentiation that is far more inclusive because they do not make distinction between the premium price quality segment on the one hand and mid price segment on the other. Provides economic benefits. It helps to build strong relationships within each target market. Cost Leadership. A Cost Leader is where the company has … References:  Hill, Charles. A cost leadership strategy is where the price may be similar or usually lower than the competition, but costs are certainly lower. It creates more capital that can be used for growth. Unique Product. Here are the possible benefits of creating a differentiation strategy: 1. Overall, there are pros and cons to differentiating your products. C) good management consists of good strategy and good strategy execution. An advantage of this is that it allows you to cover the preferences and tastes of a wide variety of consumers. Your target customers in this case are more discerning, and willing to pay extra for better value or top quality. Advantages of differentiation strategy. It allows firms to shield themselves from the competition. What Does a Low Gross Profit Percentage Mean? You have greater appeal to your target audience.Since you are different, and presumably better, you make a more appealing choice. © 2019 www.azcentral.com. What are the pros and cons of a broad differentiation strategy? At the moment, the business environment is characterized by a high rate of dynamism as a result of technological advancement, coupled with a high rate of globalization. Often the cost of production and distribution is only marginally higher than in a cost leadership strategy; however, perceived quality differences allows the selling price to be set at significantly higher points. This makes it easier to generate interest and close sales. A differentiation strategy allows companies to communicate the unique features of their products and create a niche for the product. All three generic strategies are designed to achieve distinction relative to a rival. All of these are incredibly necessary internal metrics, however, none of these matter to the customer — This is all great information for the company to have as its control panel, but these metrics have extraordinarily little that matters to customers. She also has an extensive background in dance. This is part of the reality of target marketing. More… Read More Vertical differentiation refers to products that fall on a scale from best to worst, highest to lowest, impacting the overall functionality of the item. All rights reserved. 1. differentiation strategy advantages and disadvantages. Posted October 11th, 2020. An organization employing a strategy that attempts to be “all things to all people” will become stranded in mediocrity (i.e. It will also discuss competition and strategy from rival company Walmart. When a company efficiently differentiates its products, and few essential products stand out, it usually brings out brand loyalty on the consumer’s part. Broad Differentiation Strategy is quite unique and brings about many Examples. Houghton Mifflin Company Similarly, what is cost leadership and differentiation strategy? These three broad types of competitive strategies have also been labeled generic strategies. Excerpt from Essay : Strategy Michael Porter described four types of generic strategies, a matrix with cost leadership and differentiation on one axis, and broad market/niche along the other. Download Solution: Click to Download Solution Solution File Name: Porsche.docx Unzip Password: prestobear.com 1. There are several ways an organization can create a differentiation-based competitive advantage for a single product or the company as a whole. In 2007, department store Dillard’s stopped carrying men’s sportswear made by Nautica because the seafaring theme of Nautica’s brand had lost much of its cache among many men (Kapner, 2007). There are some big advantages to using a differentiation strategy. For example, following the differentiation focus strategy, Betterment – the largest automated investing service – clearly has a strong advantage by focusing on a narrow segment. Since then, she has worked as a reporter for the Wilbraham-Hampden Times, an editor for Month9Books and Evolved Publishing, editor and has spent the past seven years in marketing and graphic design. Arts in English 76SAQ from Chapter 5S5.3: what are the pros and cons of a differentiation strategy your... Salve Regina University with a Bachelor of Arts in English tremendous advantage when economic circumstances take a for... Expensive than a black one on two clear levels: vertical and horizontal these cases is about the basic of! This differentiation strategy: the strategy employed by Andrew ’ s products lack business: product differentiation helps you competitive! To drive revenue and profit establishing a competitive advantage in a narrow market industry... A broad range of market or industry of steep losses are present colors and styles though, relative other! To price changes, therefore, the objective is to preserve the existing product line continuing. 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