Differentiation is a strategy aimed at producing products and services considered unique and directed at consumers who want something unique or different and are relatively price-insensitive.
It allows a firm to charge a higher price for its product and to gain customer loyalty because consumers may become strongly attached to the differentiation features.
Special features that differentiate one’s product can include improved product performance, useful life, superior service, spare parts availability, engineering design, ease of use and so on.
A differentiation strategy should be pursued only after a careful study of buyers’ needs and preferences to determine the feasibility of incorporating one or more differentiating features into a unique product that features the desired attributes.
Common organisational requirements for a successful differentiation strategy include the following:
a. High R &D budget,
b. Strong coordination among the R & D and marketing functions and
c. Substantial amenities to attract scientists and creative people.
Risks of pursuing a differentiation strategy are as follows:
a. The new may not be liked enough by customers to justify the higher price.
b. Competitors may develop ways to copy the differentiating features quickly. Firms thus must find durable sources of uniqueness that cannot be imitated quickly or cheaply by rival firms.