In the case of focus differentiation, one advantage is that very high prices can be charged. Differentiation strategies have strengths and weaknesses. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in. The focus strategy concentrates on a narrow segment and within that segment seeks to achieve either a cost advantage or differentiation. 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. A critique of porters cost leadership and differentiation. A differentiation strategy allows companies to communicate the unique features of their products and create a niche for the product. Learning point associates differentiation through flexible grouping. Advantages and disadvantages of product differentiation.
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 most revolutionary development in the american automobile market then was the popularity of. 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. 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.
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. Differentiation and its role in competitive advantage. Every brand is built on a product i include services here as well. Porters generic competitive strategies ritika tanwar. The study further established that there is a strong.
This dual nature is reflected in its appearance in two different parts of typical strategy textbooks. Think the teacher provokes students thinking with a question or prompt or observation. 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. A market consists of individual customers who have unique product wants and needs. Product differentiation is important in todays financial. Below we illustrate a few examples in relation to an often differentiated productwomens handbags. This differentiation strategy involves using the characteristics of the product you market to differentiate from your competitors. Pair using designated partners, nearby neighbors, or a desk mate, students pair up. Differentiation advantage low price strategies high nonprice strategies market segmentation low mass market high many mark ets distinctive competences manufacturing and buying marketing.
Disadvantages of product differentiation a product differentiation generally reduces the degree of competition in the market. A focused differentiation strategy aims at securing competitive advantage a. While having a quality product is good, being able to develop and articulate the qualities or features that clearly make one product better. At the same time, a firm can clearly improve or erode its position within an industry through its choice of strategy. Firms that compete based on price and target a broad target market are following a cost leadership strategy. Thus a differentiation strategy helps create barriers to entry that protect the firm and its industry from new competition. The students should take a few moments just to think about the question. Product differentiation strategy a good product differentiation strategy may gain brand loyalty, which is paramount to any successful business. They are available to any consumers as long as the items are online. Thanks to ecommerce, goods and services have become more mobile and digitalized. 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. Pdf fostering a competitive differentiation strategy for. In this strategy, there is an ability to defend against newcomers, because for.
It reduces competition amongst existing firms because consumers are reluctant to substitute one product for. Differentiation strategies make it easier to focus your marketing efforts and create raving fans, but it can exclude some buyers. Without one or more of these advantages, the strategy can easily be mimicked by competitors. The corporate strategy in these cases is about the basic direction of the firm as a whole. The focus strategy is one of three generic strategies that professor porter created at the time. Advantages and disadvantages of porter s generic strategy. More bus companies adopted differentiation strategy than cost leadership strategy, focus strategy and integrated strategies. There could be small businesses or involved in a single business or a large, complex and diversified conglomerate with several different businesses. Advantages and disadvantages of the focused strategies. With the use of his generic strategy model, a firm, understanding where its competitive advantage lies, can then formulate and implement an. The differentiation can be about colors, packaging, shapes, flavors, etc. Advantages and disadvantages of differentiation open. The use of differentiation strategy by libraries to gain.
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. Competitive strategy, then, not only responds to the environment but also attempts to shape that environment in a firms favor. The major purpose of this study is to explore the relationship between market. Porter distinguished between two types of strategies. Horizontal differentiation is when products are differentiated according to a specific feature. 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. For that purpose, a differentiation strategy is chosen as the topic for the thesis. Understand how economies of scale help contribute to a cost leadership strategy. Hashem valipour, hamid birjandi and samira honarbakhsh 2012. As a result, especially in the early stages of the brand building process where not enough emotional connections have been built, productbased.
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. 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. This research work therefore, focused on how competitive advantage can be achieved through product differentiation strategy and. Product differentiation occurs on two clear levels. A differentiation strategy offers important advantages and disadvantages for firms that adopt it.
Vertical differentiation refers to products that fall on a scale from best to worst, highest to lowest, impacting the overall functionality of the item. Product differentiation is economically advantageous to a company. 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. Competitive advantage essay sample new york essays.
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. 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. Cost leader a cost leader is where the company has decided to create the cheapest product on the market. Michael porter, believed that the basis for this advantage falls under 3 base strategies of cost leadership, differentiation and focus. In this strategy, valuable differentiations in costumers products and services decrease costumers sensitivity to the price. Product differentiation affects both rivalry restraint and competitive advantage. Disadvantages of product differentiation, managerial. 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. As with a focused lowcost strategy, narrow markets are defined in different ways in different settings. The advantages of differentiated marketing your business. Indeed, these firms often price their wares far above what is charged by firms following a differentiation strategy figure 5.
For example, following the differentiation focus strategy, betterment the largest automated investing service clearly has a strong advantage by focusing on a. A firm has a competitive advantage when it implements a strategy competitors are unable to duplicate or find too costly to imitate. Horizontal differentiation has similar products that vary in ways that are often. The aim of this essay was to analyze competitive advantage as the achievement of superior performance through differentiation and lowest delivered cost.
Know the advantages and disadvantages of a cost leadership strategy. Choose of one puts constraints on using the second. Product differentiation being the most commonly used one of these two strategic typologies spencer, joiner, and salmon, 2009. 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. The effects of cost leadership strategy and product differentiation strategy on the performance of firms. Consider what you want to accomplish and who your demographics are. This presentation draws on ideas from professor porters books and articles, in particular, competitive strategy the free press, 1980. Each generic strategy offers advantages that firms can potentially leverage to enjoy strong performance, as well as disadvantages that may damage their performance. Effectiveness of differentiation strategy on business. A critique of porters cost leadership and differentiation strategies 40 strategy can bring about in gaining a low cost position, as porter 1985, p. Product differentiation means that your product has one or more distinct attributes that separate it from competitors. Companies pursue various marketing strategies to attract customers to them rather than to competitors. 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. Failing to emphasize cost advantages that can be kept proprietary or that relegate rivals to playing catchup.
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