DIFFERENTIATION

Accelerate your business with these expert tips on "Differentiation". Analyse and discover this TIP!

If you can't be different from the competition, you will have to be the cheapest!!! A differentiation strategy is a strategy used by an entrepreneur who seeks to produce and sell products that are perceived as unique and original, that are difficult to imitate and that allow him/her to achieve a competitive advantage (see TIP) through differentiation from the competition. When a company uses the differentiation strategy, it is able to make its customers perceive its products as unique and exclusive. This gives it a great advantage, because customers will be willing to pay high prices for products that are perceived as offering superior value.

As a result, companies can differentiate their products by their quality and unique design. But also, by the technology incorporated or the service they provide, among some of the factors that can be highlighted, but there are as many differences as you can imagine. Similarly, for this strategy to be profitable, the company must try to ensure that its costs are not increased unnecessarily. Although it can charge higher prices, the price set should not exceed what the customer is willing to pay. Achieving differentiation involves incorporating key activities that add value to the customer, and this comes at a cost. So being cheap and being different are at odds. Or the other way around, if I cannot differentiate myself from the competition, I will have to compete on price.

Product or service differentiation

Product differentiation is a competitive strategy (+) which aims to make the customer perceive the good or service offered by your company differently from those of your competitors. Product differentiation can be mainly based on various attributes such as quality, colour, size, after-sales service, specialised service, location, brand recognition or luxury. 

Thus, any attribute that makes a good or service perceived differently is considered product differentiation. It should be noted that differentiation also has a subjective element. This is because consumers may perceive that a certain brand is different from another based not on a comparison of objective characteristics, but on their perception of the company and its image.

Types of product differentiation:

There are two types of product differentiation, horizontal and vertical:

HORIZONTAL PRODUCT DIFFERENTIATION

This refers to differentiation based on variety. That is, in the different attributes that the product or service may have. We refer, for example, to colour, texture, size, location, etc. Consumers will not necessarily agree on which product is more valuable than another. Thus, it all depends on their own preferences. One of the best known models of horizontal differentiation is the one proposed by Hotelling which assumes that consumers are evenly distributed along a straight line and sellers must choose their optimal location. In this case, differentiation is based on location and consumers will prefer a seller that is close to them unless the price difference is significant. The model can be extended for differentiation of attributes other than location.

VERTICAL DIFFERENTIATION

This refers to differentiation by quality. In this case, consumers agree on which goods or services are of higher or lower quality. Consumers prefer higher quality to lower quality. However, not everyone will be willing to pay the price. In this case, sellers must choose the level of quality that optimises their profits. Differentiation strategies are those that seek to differentiate your company from your competitors by offering unique value to your customer segment. 

THE FOLLOWING ARE SOME DIFFERENTIATION STRATEGIES THAT A NEW COMPANY MIGHT CONSIDER:

1. Quality: the company could focus on offering high quality products or services compared to the competition.
2. Design: could be differentiated through the design of products or services, either by their aesthetic appeal or by their functionality.
3. Innovation: the company could constantly look for new ways to innovate its products or services, thus offering something that its competitors do not have.
4. Customer service: Offering exceptional customer service could be a way to differentiate yourself from the competition.
5. Price: Although a low-price strategy is not necessarily a form of differentiation, a company could seek to differentiate itself by offering high quality products or services at a higher price than the competition.
6. User experience: the company could focus on offering a unique and pleasant user experience, with a user-friendly and accessible interface.

The differentiation strategy should be consistent with your company's core business and the resources you have at your disposal. Not all differentiation strategies are applicable to all companies, so it is important to conduct a careful analysis of the situation and the market before choosing a strategy.

THERE ARE REALLY ONLY THREE WAYS TO DIFFERENTIATE:

There is no doubt that things are getting tougher every day. Whether you are a startup, an SME or a large company, competition is becoming more aggressive every day... which pushes us to look for new ways to evolve and differentiate ourselves. Easier said than done, but do we really understand what options we have? Differentiating from the competition is more than just looking at the competition and reacting to their new product or service launches, but adding 'our touch' to it (which is really a way of justifying that ours is better, but often it is not)... which leads to 'towing' competitive strategies.

Differentiation means doing things differently... but not for the pleasure of looking for another way, but by putting our focus on something else. It involves understanding the soul of the product or service we sell, and for that we must first understand the problems (not the expressed needs) of customers... and build on them.

WHAT ARE THE OPTIONS FOR DIFFERENTIATION?

There are dozens of classifications of possible differentiation strategies, but in practice they really boil down to 3, derived from how the customer perceives us: