Differentiation Strategy: How to Beat the Competition
A differentiation strategy is a business level strategy that tries to distinguish a product or service from other similar or competitive offerings. Differentiation is the key to successful marketing, and the reason that we actually know some products by their manufactured name, and not the name of the product itself. Take things like: scotch tape, blimps, or even Starbucks as examples. Maintaining a competitive advantage means differentiating yourself from your competitors.
What happens without a differentiation strategy? Nothing—that’s the problem. If there is nothing to discern you from your competitor, your product will not be picked over another unless it significantly undercuts the cost. Even then, without significant customer trust in the ability of your product to do what it says it can do, they still might opt for a brand they know.
Take a few examples: when traveling abroad, Americans will often opt for a Starbucks or a Dunkin Donuts instead of a local brand. Why? If it’s caffeine they are after, they know what to expect from a brand they recognize.
The same can be said for McDonalds, H&M, 7/11, and a whole host of other brands. Like Starbucks differentiation strategy, these names are household trusted and approved. If there is any doubt about what type of product they may get, the consumer will often go for the tried and true.
So how do you win out? Make your brand, the tried and true! You don’t need to have the biggest product offering, the largest global presence, or have been around for the most years to great a solid brand. Companies differentiate themselves daily, by choosing the appropriate differentiation strategy to make them stick out in the crowd.
Choosing Your Differentiation Strategy
You want to make sure you’ve got a focused differentiation. This does not need to break the bank—in fact, the best way to differentiate is through a low cost strategy.
In order to develop a strategy for action, it’s important to first understand your company’s strategic position in the market. Questions you’ll need to answer are things like:
- How do customers view your product or service offering when lined up against your competitors?
- How much do customers trust your brand?
- What is your core marketing message?
- What is your unique value?
- Is there a value-add that your company or product has that your competitors do not?
Knowing exactly how you are positioned in the market will inform the strategic action you will need to take. Building a simple, clear, and recognizable brand does wonders for differentiation. All too often we have clients come to us with a passionate idea of their mission, but the delivery is too complex for their customer. Messaging is essential when explaining to a customer why they should pick you over a competitor, so: keep it simple. Keep it clear. Keep it concise. Keep it recognizable.
What is Focused Differentiation Strategy?
One tactic of differentiation is to develop what’s referred to as a “focused differentiation strategy”. This is an approach where a company aims to outperform its competitors by offering up a product that is seen by consumers to be of higher quality/caliber than its rivals, even though the price is higher.
Have you ever sat in between two aisles of a store wondering why a product is more expensive than a seemingly identical product? This is a well-versed method of focussed differentiation. As a consumer, it’s hard not to believe that one product is superior to another when the price tag literally tells us that one is far more valuable.
This type of strategy narrows their market, because not everyone can afford a more expensive product, but they make more in revenue per product than their competitors. This can be an effective strategy for a small company trying to lean into a niche, such as sustainability.
The pitfalls of a differentiation strategy include changing the approach, not refining the messaging, and failing to create a simple and captivating brand. Differentiation is straightforward when you think about it: commit to your brand, your messaging, your approach.
If you’re looking for an example, look no further than the Apple differentiation strategy. They outprice their competitors significantly, by creating a brand and a strategy that makes consumers think they need Apple products because they’re superior.
They’re not, by the way.
What is Broad Differentiation Strategy
A differentiation strategy works best when a company knows who its audience is. Just like the above focussed differentiation strategy, a broad differentiation strategy also accounts for its audience. Like its name, there is one main characteristic of a broad differentiation strategy: appealing to a large swatch of the consumer audience. Broad differentiation strategies don’t hike the price up above their competitors because they want the product to be broadly accessible.
What they will do, however, is try to connect with that broad audience in a meaningful way. This means creating an industry-wide appeal to a large group of people. A company that does this well, is Amazon.
The Amazon differentiation strategy aims to give their customers choice. They offer a market place from the safety and comfort of home that allows their many customers to choose for themselves. Take note, when Amazon rolls out its bespoke Amazon-branded goods, they are right in between the many offerings of competitive products. They just also have a stamp of approval on them, and are often complete imitations of the best-selling products within each product category. Amazon isn’t going for a niche, they’re going for broad.
What is Product Differentiation Strategy?
Product differentiation strategy is exactly what it sounds like. It’s creating a meaningful reason why your product is better than the competition.
Here’s an example: which of the following statements is not one of the differentiation strategy decisions?
- Our product appeals to a lot of different consumers
- Our product can speak for itself – we don’t need to differentiate because it’s already unique
Answer? B. There are so many offerings in the market right now, that there is very little chance your company offers a completely unique product. This approach is actually an example of one of the flawed ways to pursue a differentiation strategy. Part of building a solid differentiation strategy is making them think that your product is the only product that offers up what they need, but don’t kid yourself. Marketing is essential here – you will need to tell consumers why your product is one-of-a-kind because it will not speak for itself, especially with your competitors trying to tell consumers why their products are better than yours.
How to Create an Effective Differentiation Strategy?
Like we dove into above, creating an effective differentiation strategy is actually quite straightforward. Remember that in order to do so, you need to:
- Research the Competition (sample only)
- Refine your messaging – make it clear and concise!
- Formulate (and in some cases establish) your brand – keep it simple and recognizable!
- Discuss your options for differentiating from your competitors
- Stick to your strategy!
Figure out how your competitors are selling their products and figure out how you can tell your customers that you do it better. This is our bread and butter, and if you need guidance, please reach out to us. We would be happy to support your organization in the development of its differentiation strategy.
