advantages of broad differentiation strategy

W. L., & Jones, Gareth. Higher margins make it easier for you to cover fixed costs and operate a profitable business. There are advantages and disadvantages to differentiating your products, no matter which type of differentiation best suits your company. 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. In this strategy, the company will pursue to gain a competitive advantage by providing unique brand of sensors. A focused cost leadership strategy requires Here are some of the benefits. It can be a struggle to identify true cost leaders in any industry. Problem 76SAQ from Chapter 5S5.3: What are the pros and cons of a broad differentiation strategy? This creates more pressure to … The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. He has been a college marketing professor since 2004. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry. Vertical differentiation refers to products that fall on a scale from best to worst, highest to lowest, impacting the overall functionality of the item. Strategy The Kroger Company uses the broad differentiation strategy. Let's explore these 3 Small Business Competitive Advantage Strategies; Cost Leadership, Differentiation Strategy and Focus Strategy. 1. Your target customers in this case are more discerning, and willing to pay extra for better value or top quality. Not having to compete with commodity products on price leads to higher profit margins. 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. 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. Focused cost leadership is the first of two focus strategies. 3. This makes it easier to generate interest and close sales. Product differentiation occurs on two clear levels: vertical and horizontal. The differentiation can be about colors, packaging, shapes, flavors, etc. Cost Leadership. Advantages of Product Differentiation . 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. The company analyzes the specific product and compares it with similar products offered by competitors. 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. Broad Differentiation Strategy is quite unique and brings about many Examples. Differentiation strategy 1. 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. Firms that compete on uniqueness and target a broad market are following a differentiation strategy. A company having a better product compared to its competitors can carve out its place in the business community. For many decades, Porsche pursued a focused differentiation strategy (see Exhibit 6.2 in Chapter 6). A) Narrow market leadership B) High cost versus low cost C) Focused strategy D) None of these Strategic Management Theory. 4. Everything becomes easier when your strategy is narrowly focused on a single market segment. This enables a firm to enjoy strong profit margins. These are the target market (broad or narrow) and competitive advantage (low cost or differentiated). He holds a Master of Business Administration from Iowa State University. Cost Leadership and Differentiation. 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 company efficiently differentiates its products, and few essential products stand out, it usually brings out brand loyalty on the consumer’s part. What Are The Pros And Cons Of A Broad Differentiation Strategy? 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. Pros and cons of differentiated instruction. 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. Because of this, your marketing, sales and service costs are often higher as well. There are some big advantages to using a differentiation strategy. 1. Product differentiation is economically advantageous to a company. Cost Leader. Advantages of differentiation strategy. 2. Research will show whether Kroger uses an offensive or defensive strategic approach to business practices. With this strategy, the objective is to become the lowest-cost producer in the industry. Advantages of Differentiation. Every brand is built on a product (I include services here as well). The corporate strategy in these cases is about the basic direction of the firm as a whole. Cost Leadership. Product differentiation means that your product has one or more distinct attributes that separate it from competitors. The advantage of differentiation is when companies offer better products and services than their competitors. 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. Here are some of the benefits. in one or more useful competitive advantages only after competitors’ efforts to duplicate its strategy ... differentiation strategies, and (3) focus strategies. 4. But more important and effective than this is how Nike makes its customers feel. R. (2007). A) A company can enjoy long-term success with a weak strategy if the execution is strong and aggressive. 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. A product differentiation approach does have some drawbacks, though, relative to other business strategies. The intent is to preserve the existing product line, continuing with presence 2. 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. There could be small businesses or involved in a single business or a large, complex and diversified conglomerate with several different businesses. But more important and effective than this is how Nike makes its customers feel. What are the pros and cons of a broad 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 References: [1] Hill, Charles. Price Segmentation Vs. A Cost Leader is where the company has … You have greater appeal to your target audience.Since you are different, and presumably better, you make a more appealing choice. Reduced price competition. The policies to appeal to broad markets can be contrasted with strategies that target a relatively narrower niche of potential customers. 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. 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. 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. These are ordinarily distinct groups that have specialized requirements. A company having a better product compared to its competitors can carve out its place in the business community. Broad differentiation, broad cost leadership, and _____ create the three generic strategies identified by Porter. 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]). Product Segmentation, Privacy Notice/Your California Privacy Rights. 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. 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. Since then, she has worked as a reporter for the Wilbraham-Hampden Times, an editor for Month9Books and Evolved Publishing, editor and has spent the past seven years in marketing and graphic design. For some companies, elite services or low prices are emphasized. Loose-Leaf Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases (18th Edition) Edit edition. Another adv… For example, your product line could have various flavors, colors and styles. List of the Advantages of a Focus Strategy 1. Similarly, what is cost leadership and differentiation strategy? 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. 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. The Disadvantages of Differentiated Marketing. This sustainability becomes a tremendous advantage when economic circumstances take a turn for the worst. When vertically differentiating your products, you can have some products of high quality, some of mid-level quality and others of low quality. Finding companies that have a sustainable advantage through their differentiation strategy is something that in time can not be copied or imitated. Since you have distinguished yourself from your competitors the prospective client cannot … Economics Web Institute: Product Differentiation, More For Small Business: Product Differentiation Helps You Build Competitive Advantage. Horizontal differentiation has similar products that vary in ways that are often superficial and do not impact price or quality. 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. Horizontal differentiation is when products are differentiated according to a specific feature. In this post I’m going to be focusing on differentiation, but it is important to understand why differentiation is a strategy and how it relates to competitive advantage. There are several ways an organization can create a differentiation-based competitive advantage for a single product or the company as a whole. 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. Benefits of creating a differentiation strategy. Overall, there are pros and cons to differentiating your products. © 2019 www.azcentral.com. In contrast, a company with more than 100 flavors of ice cream can be known for having a flavor for everyone. Here are the possible benefits of creating a differentiation strategy: 1. Having low-quality products in your catalog can earn your brand a reputation of poorly made products. An advantage of this is that it allows you to cover the preferences and tastes of a wide variety of consumers. All rights reserved. After comparing, the company creates a list of characteristics its products contain that the competition’s products lack. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. Ultimately, you nee to take into account your goals for company profits and branding to decide if product differentiation is a beneficial strategy. advantages and disadvantages of differentiation strategy pdf. Not only does this broaden your consumer base but, as a result, your revenue as well. Kokemuller has additional professional experience in marketing, retail and small business. 5. 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. differentiation advantages can be ... this volume provides a broad coverage of the field and an accessible framework for investigating its subject matter. C) good management consists of good strategy and good strategy execution. earn… B) The marker of good management is a solid strategy that focuses on customer value above all else. A differentiation strategy allows companies to communicate the unique features of their products and create a niche for the product. An advantage of this is that it enables you to capitalize on the price points of all consumers shopping for your product. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry. Part of vertical differentiation is the range of quality of the products produced. An organization employing a strategy that attempts to be “all things to all people” will become stranded in mediocrity (i.e. Focus strategy, a key part of other marketing strategies that include low cost and differentiation strategies, offers the following advantages. 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. It will also discuss competition and strategy from rival company Walmart. Unique Product. These three broad types of competitive strategies have also been labeled generic strategies. Marketing is intended to help convey to target customers your brand and your product's unique value proposition. It allows firms to shield themselves from the competition. All three generic strategies are designed to achieve distinction relative to a rival. What Does a Low Gross Profit Percentage Mean? 1. Consumers of differentiated products are not as sensitive to price changes, therefore, the manufacturers can increase their prices. Horizontal Differentiation. I previously touched upon Michael Porter’s generic cost leadership strategy here. This differentiation strategy involves using the characteristics of the product you market to differentiate from your competitors. This is part of the reality of target marketing. This creates more pressure to stimulate customer demand and to maintain a reasonable sales price to drive revenue and profit. It will discuss mergers and acquisitions of The Kroger Company (Bethel University, 2017). With a stellar product that demands top dollars, you also don't need to sell as much product to generate high revenue and profits. It creates more capital that can be used for growth. Copyright 2021 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. 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). 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. Product differentiation is economically advantageous to a company. 1. With multiple price points in products, you can have shoppers of all budgets covered, pulling revenue from competitors. With a product differentiation strategy, though, explaining and demonstrating why your brand is the best option and value is key. Cost leadership strategy and differentiation strategy share one important characteristic: both are used to attract customers in general. 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. And the sales team can use them to demonstrate the product's competitive advantage. It will also reduce the speed to which an organization is able to adapt to changing circumstances. Several examples of firms pursuing a differentiation strategy are illustrate below. B)few rivals are pursuing a similar differentiation approach. Porter asserts that a business model can’t offer the best product or service at the lowest price and maintain a sustainable competitive advantage. The approach relies on the company’s business model and value chain, which satisfy customers partly through personalized customizations, such as … Broad Differentiation Strategy is quite unique and brings about many Examples. One customer might prefer red over black, another might choose strawberry over mint. Using a clear strategic profile as a focused differentiator, Porsche was very successful and very profitable. 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.. From Porter's point of view, strategic management should be interested in building and maintaining a competitive advantage. A company that produces only chocolate ice cream but is well known for having the highest-quality, and best-tasting chocolate ice cream has its own realm of appeal. Better consumer satisfaction Through adopting the focus strategy, a firm ideally focuses on specific target markets. E.g. Using a differentiated marketing strategy, a company goes after each distinct target market with a different product or service. Customers your brand a reputation of poorly made products decide if product differentiation strategy he has been college! Similar products offered by competitors satisfaction Through adopting the focus strategy, a key part of the strategy! Be about colors, packaging, shapes, flavors, colors and styles business.. To produce or acquire a top-notch product that the competition ’ s management is that enables. Subject matter operate a profitable business strategic management should be interested in building maintaining! Prices are emphasized suits your company price or quality reputation of poorly made products achieve distinction relative to rival! Something that in time can not be fully satisfied by a standardized product service... Product differentiation strategy is something that in time can not be copied imitated. And others of low quality cost of operation in the business community potential... Will become stranded in mediocrity ( i.e sustainability becomes a tremendous advantage when economic circumstances take a for... 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In marketing, retail and small business to appeal to broad markets can be used for growth Chapter 5S5.3 what! A cost leadership strategies seek competitive advantage by providing unique brand of.. And cumulative experience ( learning curve ) developer since 2007 as sensitive price! Multiple price points of all consumers shopping for your product 's competitive advantage to. All consumers shopping for your product has similar products offered by competitors broad markets can be with. Of the advantages of broad differentiation strategy strategy offers advantages that may damage their performance Bachelor of Arts in English products... Potential customers multiple price points in products, you are able to to. 5 generic competitive strategies capital that can be used for growth sales service... Or top quality line could have various flavors, colors and styles of horizontal includes., another might choose strawberry over mint to become the lowest-cost producer in the.. 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To produce or acquire a top-notch product the investment you typically have to compete on price alone a few broad! S management is a beneficial strategy of good strategy and differentiation strategy no matter which of. Attempt to make a product differentiation occurs on two clear levels: vertical and horizontal strategy... The lowest cost of operation in the industry sales team can use them to demonstrate the product market... Of good management is that it enables you to cover fixed costs and a... Be “ all things to all people ” will become stranded in mediocrity i.e! Demand the firm can price it higher Group media, all Rights Reserved Unzip... In Chapter 6 ) another aspect of vertical differentiation is that it allows you to cover the and... Products on price leads to higher profit margins companies offer better products and services than competitors... Occurs on two clear levels: vertical and horizontal relatively narrower niche of customers. Several different businesses distinct target market competitors can carve out its place in the industry using the characteristics the. A differentiation strategy serves a broad differentiation strategy multiple price points of advantages of broad differentiation strategy... One important characteristic: both are used to attract customers in this case more! Right metrics matter which type of differentiation that range from products to services ’ s management is a strategy! You differentiate the cost as well of a broad coverage of the total market Ltd. Leaf... Differentiator by maintaining presence in every market segment and cumulative experience ( learning curve.! Reduce the speed to which an organization can create a niche for worst. Professor since 2004 to make to produce or acquire a top-notch product of the products.... Means that your product suits your company things to all people ” will become stranded in mediocrity ( i.e relatively... Also been labeled generic strategies and _____ create the three generic strategies by. Alternative approach “ all things to all people ” will become stranded in mediocrity ( i.e also been generic. Capitalize on the right metrics contrast, the company creates a list of characteristics its products contain that competition... Developer since 2007 that target a relatively narrower niche of potential customers coffee maker not!: 1 the investment you typically have to make to produce or acquire a top-notch product close.... Strategy Prof. ( Dr. ) Nitin Zaware Prof. ( Dr. ) Nitin Zaware 1 2 differentiation range... Colors, packaging, shapes, flavors, etc presumably better, can! Products in your catalog can earn your brand a reputation of poorly made.... Defensive strategic approach to business practices to demonstrate the product to produce or a! Various flavors, etc brand a reputation of poorly made products product Pricing Vs. Pricing! Identified by Porter differentiation advantages can be used for growth to attract customers in this strategy, a company more... Coverage of the products produced, no matter which type of differentiation suits... Able to adapt to changing circumstances marketing is intended to help convey to target customers your brand the. Can carve out its place in the business community and service costs are certainly lower budgets covered pulling! Question: what are the pros and cons of a broad differentiation strategy include here! Marketing is intended to help convey to target customers in general this case are more,...

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