A) A company can enjoy long-term success with a weak strategy if the execution is strong and aggressive. 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. Advantages of Product Differentiation . 5. 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. 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. Pursuing a differentiation strategy requires a larger financial investment from the company, another weakness. This contrasts with a more universal, mass market approach, in which the same product is … 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. 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. 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. Competitive Advantage cannot be fully understood by considering an organisation in general. An organization employing a strategy that attempts to be “all things to all people” will become stranded in mediocrity (i.e. An advantage of this is that it enables you to capitalize on the price points of all consumers shopping for your product. Vertical differentiation refers to products that fall on a scale from best to worst, highest to lowest, impacting the overall functionality of the item. But more important and effective than this is how Nike makes its customers feel. 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. It will also reduce the speed to which an organization is able to adapt to changing circumstances. 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] ). By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry. These are the target market (broad or narrow) and competitive advantage (low cost or differentiated). 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 … If a firm has a product that is high in demand the firm can price it higher. In this strategy, the company will pursue to gain a competitive advantage by providing unique brand of sensors. This is part of the reality of target marketing. 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. At the core, all differentiation strategies attempt to make a product appear distinct. See the answer. Since you have distinguished yourself from your competitors the prospective client cannot … As indicated, a differentiation strategy serves a broad market. differentiation strategy advantages and disadvantages. Reduced price competition. Previous question Next question Product Segmentation, Privacy Notice/Your California Privacy Rights. Broad Differentiation, Mergers, and Acquisitions: Outperform the Competition Timothy Creed Cannon Belhaven University Abstract Throughout the text, Essentials of Strategic Management: The Quest for Competitive Advantage, the authors discuss many different strategies which organizations can implement in an effort to outperform rivals within their respective markets. If a firm has a product that is high in demand the firm can price it higher. Every brand is built on a product (I include services here as well). 1. This broad approach of the generic strategy aligns with Netflix’s intensive growth strategies, which prioritize market penetration. Price Segmentation Vs. To be successful in using broad-differentiation strategies the firm should have adequate adaptive advantages that would allow it to continuously innovate or be able to leverage economies of scale (that comes with selling to the masses) to create sustainable differentiation. When vertically differentiating your products, you can have some products of high quality, some of mid-level quality and others of low quality. Part of vertical differentiation is the range of quality of the products produced. 4. This problem has been solved! Each generic strategy offers advantages that firms can potentially leverage to enjoy strong performance, as well as disadvantages that may damage their performance. Because of this, your marketing, sales and service costs are often higher as well. Let's explore these 3 Small Business Competitive Advantage Strategies; Cost Leadership, Differentiation Strategy and Focus Strategy. What Are The Pros And Cons Of A Broad Differentiation Strategy? Horizontal differentiation is when products are differentiated according to a specific feature. 1. For some companies, elite services or low prices are emphasized. The Disadvantages of Differentiated Marketing. 3. Types of Strategies – Cost Leadership ,Differentiation , Focus. With a product differentiation strategy, though, explaining and demonstrating why your brand is the best option and value is key. These are ordinarily distinct groups that have specialized requirements. Cost Leadership. 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. It is because once a consumer is satisfied with a few pr… This differentiation strategy involves using the characteristics of the product you market to differentiate from your competitors. E.g. 4. There are some big advantages to using a differentiation strategy. Finding companies that have a sustainable advantage through their differentiation strategy is something that in time can not be copied or imitated. Focus strategy, a key part of other marketing strategies that include low cost and differentiation strategies, offers the following advantages. Differentiation Strategy. 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 Porter asserts that a business model can’t offer the best product or service at the lowest price and maintain a sustainable competitive advantage. Cost Leader. Additionally, by going for product differentiation rather than a low cost, you effectively eliminate budget-conscious buyers who can't afford your higher prices. For example, a red coffee maker is not typically more expensive than a black one. Broad differentiation is a kind of differentiation that range from products to services. 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. Firms that compete on uniqueness and target a broad market are following a differentiation strategy. And the sales team can use them to demonstrate the product's competitive advantage. When a company efficiently differentiates its products, and few essential products stand out, it usually brings out brand loyalty on the consumer’s part. advantages and disadvantages of differentiation strategy pdf. Advantages of differentiation strategy. One customer might prefer red over black, another might choose strawberry over mint. List of the Advantages of a Focus Strategy 1. The corporate strategy in these cases is about the basic direction of the firm as a whole. With this strategy, the objective is to become the lowest-cost producer in the industry. A concern with a product differentiation strategy is the investment you typically have to make to produce or acquire a top-notch product. In business strategy, cost leadership is establishing a competitive advantage by having the lowest cost of operation in the industry. Product differentiation occurs on two clear levels: vertical and horizontal. Here are some of the benefits. 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). When vertically differentiating your products, you can have some products of high quality, some of mid-level quality and others of low quality. References: [1] Hill, Charles. For example, following the differentiation focus strategy, Betterment – the largest automated investing service – clearly has a strong advantage by focusing on a narrow segment. What are the pros and cons of a broad differentiation strategy? There are advantages and disadvantages to differentiating your products, no matter which type of differentiation best suits your company. 1. © 2019 www.azcentral.com. A differentiation strategy allows companies to communicate the unique features of their products and create a niche for the product. Benefits of creating a differentiation strategy. A differentiation strategy is where the product or service is either perceived to be, or is, of superior customer value and has a definite price premium. These categories are: Starbucks employs a broad differentiation strategy. Michelle Barry graduated from Salve Regina University with a Bachelor of Arts in English. It creates more capital that can be used for growth. A Focused Differentiation Strategy Differentiation depends on the right metrics. A company having a better product compared to its competitors can carve out its place in the business community. 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. After comparing, the company creates a list of characteristics its products contain that the competition’s products lack. With multiple price points in products, you can have shoppers of all budgets covered, pulling revenue from competitors. Once determined, the strategy is categorized as one of the 5 Generic Competitive Strategies. in one or more useful competitive advantages only after competitors’ efforts to duplicate its strategy ... differentiation strategies, and (3) focus strategies. Broad Differentiation Strategy is quite unique and brings about many Examples. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry. Advantages of Differentiation. Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. It will also discuss competition and strategy from rival company Walmart. It allows firms to shield themselves from the competition. 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. 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. Kokemuller has additional professional experience in marketing, retail and small business. Strategy The Kroger Company uses the broad differentiation strategy. Focus the differentiation strategy on the quality and design of your products and gain a competitive advantage in the market without decreasing their price. For many decades, Porsche pursued a focused differentiation strategy (see Exhibit 6.2 in Chapter 6). 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. This makes it easier to generate interest and close sales. A) Narrow market leadership B) High cost versus low cost C) Focused strategy D) None of these Cost leadership strategy and differentiation strategy share one important characteristic: both are used to attract customers in general. Expert Answer . Cost Leadership. It will discuss mergers and acquisitions of The Kroger Company (Bethel University, 2017). Problem 76SAQ from Chapter 5S5.3: What are the pros and cons of a broad differentiation strategy? 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. The company analyzes the specific product and compares it with similar products offered by competitors. Research will show whether Kroger uses an offensive or defensive strategic approach to business practices. Not only does this broaden your consumer base but, as a result, your revenue as well. A cost leadership strategy is where the price may be similar or usually lower than the competition, but costs are certainly lower. I previously touched upon Michael Porter’s generic cost leadership strategy here. Strategic Management Theory. A concern with a product differentiation strategy is the investment you typically have to make to produce or acquire a top-notch product. 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. How Does Product Differentiation Affect Price Elasticity? All rights reserved. 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 … He has been a college marketing professor since 2004. 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. C)products of rivals are weakly differentiated. For example, your product line could have various flavors, colors and styles. Original Strategy: The strategy employed by Andrew’s management is that of a broad differentiator by maintaining presence in every market segment. C) good management consists of good strategy and good strategy execution. If you succeed, you can make up for these costs in higher revenue, but the downside risks of steep losses are present. Your target customers in this case are more discerning, and willing to pay extra for better value or top quality. Cost Leadership and Differentiation. Marketing is intended to help convey to target customers your brand and your product's unique value proposition. You have greater appeal to your target audience.Since you are different, and presumably better, you make a more appealing choice. All three generic strategies are designed to achieve distinction relative to a rival. Using a clear strategic profile as a focused differentiator, Porsche was very successful and very profitable. differentiation advantages can be ... this volume provides a broad coverage of the field and an accessible framework for investigating its subject matter. A product differentiation approach does have some drawbacks, though, relative to other business strategies. Broad Differentiation Strategy is quite unique and brings about many Examples. This sustainability becomes a tremendous advantage when economic circumstances take a turn for the worst. Question: What Are The Pros And Cons Of A Broad Differentiation Strategy? Several examples of firms pursuing a differentiation strategy are illustrate below. Focused cost leadership is the first of two focus strategies. Ultimately, you nee to take into account your goals for company profits and branding to decide if product differentiation is a beneficial strategy. Another adv… For a focus strategy to be successful, businesses and brands must actively listen when hearing about the needs and concerns of their targeted demographic. There are some big advantages to using a differentiation strategy. 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. If you do lower your prices to attract cash-strapped buyers, you run the risk of creating a price orientation and devaluing your product over time. In contrast, a company with more than 100 flavors of ice cream can be known for having a flavor for everyone. An advantage of this is that it allows you to cover the preferences and tastes of a wide variety of consumers. When you differentiate the quality of your products, you are able to differentiate the cost as well, another aspect of vertical differentiation. A company having a better product compared to its competitors can carve out its place in the business community. 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. 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. Product differentiation is economically advantageous to a company. A distinguished, better-quality product also offers greater profit margin opportunities than selling with a low-cost or alternative approach. Differentiation Strategy Prof. (Dr.) Nitin Zaware Prof. (Dr.) Nitin Zaware 1 2. 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. This enables a firm to enjoy strong profit margins. Similarly, what is cost leadership and differentiation strategy? Here are some of the benefits. What Does a Low Gross Profit Percentage Mean? Differentiation strategies have several advantages that may help you develop a unique niche within your industry. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. Houghton Mifflin Company Differentiation strategy 1. Product differentiation is economically advantageous to a company. Your … 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. These three broad types of competitive strategies have also been labeled generic strategies. Consumers of differentiated products are not as sensitive to price changes, therefore, the manufacturers can increase their prices. A focused cost leadership strategy requires 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.. She also has an extensive background in dance. There are several ways an organization can create a differentiation-based competitive advantage for a single product or the company as a whole. What Internal & External Factors Affect Market ... What Internal & External Factors Affect Market Segmentation? 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. Horizontal Differentiation. Business-level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. From Porter's point of view, strategic management should be interested in building and maintaining a competitive advantage. There could be small businesses or involved in a single business or a large, complex and diversified conglomerate with several different businesses. Here are the possible benefits of creating a differentiation strategy: 1. It helps to build strong relationships within each target market. The intent is to preserve the existing product line, continuing with presence 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. 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. Economics Web Institute: Product Differentiation, More For Small Business: Product Differentiation Helps You Build Competitive Advantage. Having low-quality products in your catalog can earn your brand a reputation of poorly made products. New Product Pricing Vs. Market-Penetration Pricing, BusinessDictionary.com: Product Differentiation, Washington State University: A Definition of Advertising. One strength of a differentiation strategy is that it builds on the unique qualities in a product. W. L., & Jones, Gareth. Unique Product. B)few rivals are pursuing a similar differentiation approach. The differentiation can be about colors, packaging, shapes, flavors, etc. This creates more pressure to stimulate customer demand and to maintain a reasonable sales price to drive revenue and profit. A Cost Leader is where the company has … You do not have to compete on price alone. But more important and effective than this is how Nike makes its customers feel. R. (2007). It allows firms to shield themselves from the competition. Not having to compete with commodity products on price leads to higher profit margins. Another implication of product differentiation is that very often, it brings brand loyalty into the picture. Better consumer satisfaction Through adopting the focus strategy, a firm ideally focuses on specific target markets. Offers the following advantages what is cost leadership strategy here when you differentiate quality! 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