The risks of the differentiation strategy include: d. a decision that the differentiated features are not worth the price. Differentiation strategy is advantageous for a firm because of the fact that: Which of the following terms refers to the extent to which an increase in the cost of the product makes a buyer less likely to purchase an item? Then test and adjust. Then you need to build the tools to make that plan happen. . A differentiation strategy is focused on elevating the presence of a business within a marketplace and highlighting the things that make it different from similar competitors. It will also inform your selection of issues to write about to make your expertise more visible to your target audience. So much for a strong brand differentiator. 45. But what about the argument that professional services are “a relationship business”? They actually can support a “great people” differentiator with evidence. b. Differentiation strategies based on distribution systems are generally unsuccessful. This is why many firms choose to compete with a focused strategy. STRATEGIC IMPLEMENTATION: After completing the strategy formulation, SHRM implement the strategy which is involved with five important variables. Many companies pursue an integrated cost leadership/differentiation strategy, working to lower cost structures while also enhancing their products and services. No special training. If camping equipment such as sleeping bags, lanterns, and stoves fail during a camping trip, the result will be, … The list goes on. Usually employed where a firm has clear competitive advantages and can sustain an expensive advertising campaign. One risk of the differentiation strategy is that: c. the firm may offer differentiated features that exceed the customers’ needs. In the professional services, expertise is what you sell. We conducted extensive research on highly visible experts and the professional services buyers who hire them. In this research, five dimensions of differentiation strategy were studied including pricing, value-added products, operating procedures, distribution network and customer incentive programmes. Differentiation is a business strategy where firms attempt to gain competitive advantage by increasing ... effective differentiation- the one that will bring the venture the most success-will likely come from just one or two strategies. December 23, 2020. Definition Product differentiation is a critical strategic marketing process. There is no good reason to switch (if you are delivering on your promise) and no comparable alternative to switch to. In any market, a quality hierarchy exists for a particular type of product that ranks products of one kind from a position of low quality to the highest quality product. Not long ago, a prospective client came to us for our marketing expertise. Cost leadership emphasises low cost relative to competitors. Apart from the moral hazard of making stuff up, it is simply too easy for people to see through exaggerated claims. Differentiation Strategy Rather than costs, a firm using the differentiation strategy tries to invest in and develop features that differentiate its goods or services in ways customers value. It is rewarded for its uniqueness with a … As we outline in The Visible Expert, there are certain strategies and techniques that can elevate the visibility of your expertise in the marketplace. However, a differentiation strategy may also be associated with greater risk. Set the price of the product based on the features of the product and purchasing power of the customer. Research will help you align your firm’s offerings with the desires and preferences of potential clients. The marketplace doesn’t stand still. Product Differentiation Strategies in Food sector 1. 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. But the only proven way to make your expertise visible and turn it into a credible differentiator is to have a clear strategy. One of our clients provides specialized software development services — and they hire only PhD-level programmers. Their competitors certainly could not make the same claim. c. A firm can achieve and sustain differentiation as long as its price premium is less than the extra costs incurred in being unique. Coca-cola. To build a sustainable differentiation strategy you need to build your reputation around those distinctive characteristics and make your expertise exceptionally visible to your target audience. Well, that assumption is partially true. This latter approach is often referred to as a. is something that makes your business meaningfully different from your competitors and more valuable in the eyes of your target audience. Fortunately, it is possible to make intangible expertise visible and real. Unfortunately, unless you have a sustainable cost advantage, you can’t keep up this strategy for long. However, a differentiation strategy may also be associated with greater risk. B. Your area of expertise or other differentiator should be broad enough to be enduring and relevant to your clients. An example of a firm that has achieved success in both a cost advantage and differentiation is McDonald. In our research of professional services firms, we found another reason to reject client service as a differentiator — buyers don’t even consider it as a selection criterion. How about video? No matter the size of your business, or which industry you come from, you should find that a differentiation strategy helps to give you a competitive advantage in a market that’s dominated by bigger, more deeply-ingrained companies. , visible expertise plays the single most significant role in driving referrals. Types of Product Differentiation . The narrower and more specialized your expertise, the easier it is to make it visible and defend against potential competitors. Build a list of potential differentiators and put them to the three-step test. An example of a firm that has achieved success in both a cost advantage and differentiation is McDonald. B. The cost difference between low cost competitors & the differentiated business is too high C. Obsessive cost cutting can shrink other competitive advantages D. Cost differences often decline over time. Figures 1, 2 and 3 show the average increase in visibility, perceived expertise and new business leads experienced by firms that went through Hinge’s Visible Firm program, which is based on the principles we’ve outlined in this article. Figure 2. Figures 1, 2 and 3 show the average increase in visibility, perceived expertise and new business leads experienced by firms that went through. How? Differentiation strategy is one of three Porter’s Generic Strategy; others are cost leadership and focus. To successfully pursue this strategy, companies could: a. invest in developing total quality management (TQM) systems and improving marketing effectiveness. – The purpose of this paper is to investigate the relationship between the strategic positioning of firms and the sustainability of firm performance. However, a different audience segment, such as automobile dealers, would find no value in working with the restaurant specialists. With an overall cost leadership strategy, firms need not be concerned with parity on differentiation. Differentiation strategy … Lego It may seem now like a foregone conclusion that The Lego Movie ... Over 34,000 people from over 200 countries submitted videos to win a six-month caretaker job that paid $150,000 AUD in one of the most beautiful tourist destinations in the world, while countless others enhanced their understanding of Queensland as a vacation option. Relationships — both social and professional — are still important, but only when there is an awareness of your expertise. describes what criteria companies use to select one service provider over another. 47. Differentiation Strategy is the strategy that aims to distinguish a product or service, from other similar products, offered by the competitors in the market. In any mixed-strategy equilibrium in the quality differentiation model, at least one firm randomizes only between the two extreme qualities while in the horizontal differentiation model both firms may randomize among an arbitrary number of different locations in a mixed-strategy equilibrium. And that difference must be valued by your potential clients. The firm successfully implementing a differentiation strategy would expect all of the following EXCEPT: a. customers to be more sensitive to price increases. And if your firm’s expertise is not visible, for all practical purposes it doesn’t exist. Porter’s other way — and a better way — is to stand apart. Lee, as usually, great article and advice. The message gets better and the brand gets stronger each time you make results-driven adjustments. If it can pass these three critical checks, it is worth developing into a broader differentiation strategy: Differentiators can’t be fabricated. This “Visible Expertise” will become the foundation of your, research into professional services buyers. The paper argues that pursuing a differentiation strategy leads to more sustainable financial performance compared to following a cost leadership strategy. As indicated, a differentiation strategy serves a broad market. A differentiation strategy in retail can be supported by … A grocery store chain is converting its local neighborhood stores to warehouses. Since you are different, and presumably better, you make a more appealing choice. We also know the fastest growing, most profitable firms use strategies and marketing techniques that raise the visibility of their expertise. In strategic marketing and management literature, the differentiation strategy has been based on the premise that improved/innovative outputs will translate into greater demand for the business’s outputs (Buzzell and Gale, 1987). What are you expert in? Consequently, your firm’s expertise is often unseen by the marketplace. However, once developed, it tends to last a long time, even if the basis for a firm's reputation no longer exists. As we outline in. It’s just not relevant yet. Differentiation is a business strategy where firms attempt to gain competitive advantage by increasing the perceived value of their products or services relative to the perceived value of other firm’s And that difference must be valued by your potential clients. 46. Help visitors answer the question, is this firm for me? Hinge can help you develop winning differentiators that will put you on the road to greater visibility. Differentiators are the building blocks of a differentiation strategy. With so many brands and so many varieties of products and so much advertising noise, it becomes very difficult but ultimately very necessary to differentiate your brand from competition. For example they may need help complying with a regulatory requirement or solving a critical strategic challenge. Download a free copy of the book. Clients are notoriously uninformed when it comes to judging actual expertise. A differentiation strategy involves the firm creating a product or service, which is considered unique in some aspect that the customer values. You need to make that all-important expertise visible to the outside world. This “Visible Expertise” will become the foundation of your professional services brand. Porter(1990) argues that it is important for a firm to differentiate itself among more than one dimension in order to reach the desired results. Separate yourself from competitors in a way that is both important and relevant to potential clients. Any irrelevant differentiators are wasted effort. Our research into professional services buyers describes what criteria companies use to select one service provider over another. This adds value that other options do not have. Greater value and a lack of comparable substitutes result in greater loyalty to your firm.