Differentiation as the basis of Competitive advantage

A differentiation strategy works best in what circumstances?

- If there are many ways to differentiate a product that have value and please customers - Buyer needs and uses are diverse - Few rivals are following a similar type of differentiation approach - Technological change is rapid, and competition is focused on evolving product features,

A differentiation strategy is

an action plan developed by the managers of a business to produce goods or services that customers perceive as being unique in ways that are important to them. Essentially theses strategies have unique features that increase the value of goods and services which in turn incentivize consumers to pay a higher price

Value drivers

are levers that managers can utilize to increase a customer's perception of value and willingness to pay for a product or service. E.g. customer service, size, color, materials, performance, image, exclusivity, brand , reliability, speed, etc.

To achieve a differentiation competitive advantage

Managers must - make products unique - create extra value through that differentiation - Be rewarded by customers for differentiating an offering by being allowed to charge a price premium - Ensure the cost of achieving differentiation is lower that the customers willingness to pay for those benefits

The focus of competition is usually on the

percieved importance of these unique product features, additional services, new product launches, marketing etc.

The competitve advantage is achieved when

Value - cost > competitors