The nature of today’s competitive business environment poses several challenges for businesses; there is no such thing as a commodity anymore, we live in the age of brands. This necessitates the implementation of effective differentiation strategies that can counter the dual challenges of positively influencing growth via customer acquisition and doing so in a manner that creates long-lasting customer relationships based on loyalty and trust.
Differentiating yourself means that consumers perceive your product/brand as delivering a higher value than your competitors. However, it is a little more complicated than that; the concept of value creation is much easier in theory than in practice. Equally important is the need for firms to change and evolve their differentiation strategies as markets mature with changing consumer tastes and intensifying competition.
Market differentiation is a promotional strategy employed by organizations to create a unique and exceptionally strong presence in a particular market/industry; it is the complete opposite of mass marketing. Differentiation can take several forms; manufacturers of a certain brand might produce several variations of their products to cater to different segments or a larger audience thereby enabling them to promote a sense of dominance in their respective markets.
This strategy entails using product characteristics to distinguish oneself from competitors; offering additional features over and above the competition that can become a plus point for consumers. Technology products, mobile phones, in particular, are a great example for explaining this strategy; their basis of differentiation are primarily customizability or any additional features they offer to improve the user interface. The objective is to provide features that other products in the category do not; this means businesses have to research and innovate continuously. This strategy can take the form of a technologically advanced product such as Google Glass, something that offers greater health benefits such as skimmed milk, higher quality and superior brand images such as Rolex watches or an experience that is a cut above the rest, such as Singapore Airlines.
Using this strategy, firms offer products with similar characteristics to competitors at a lower price than the competition. The travel and tourism industry tends to employ this strategy more often than others as they sell several products and services simultaneously to different market segments. Wholesale giants such as Walmart, IKEA, Costco, Target, Macro, Hyperstar, and Carrefour utilize their massive economies of scale to offer customers consistently lower prices for everyday products. This strategy enables you to cut your competition’s market share by stealing a percentage of their clients by affordability. It’s not just about lower prices; it works both ways; a higher price can help you craft an image of quality or prestige (as is used by most designer brands). However, higher prices also mean customers expect additional services such as free delivery, after sales service, etc.
Differentiation on the basis of customer service means creating an experience that doesn’t have a start or end point. This requires firms to focus on the benefits, convenience, and accessibility of their service as compared to competitors; it includes the pre-purchase research period, in-store (or online) browsing, point of sale or point of purchase and post-purchase/after-sales service. Customers make judgments about a brand based on the entire process, including all the people and channels they come into contact with. Consistency is key; analysis of customer feedback via surveys, observations, social media or other methods is instrumental in providing the optimal level of customer service and making improvements accordingly. Tools such as loyalty programs, speedy delivery, warranties and comprehensive after sales service are extremely effective in providing superior customer service.
This strategy aims to set you apart by enabling your brand to take customers beyond the realm of mere product purchase. This concept follows creating a ‘satisfaction supply chain’ beginning from initial contact with customers to post-sales efforts. Walt Disney World, Legoland, and Niketown are great examples of brands that have taken the customer experience to the next level. Dove’s ‘natural beauty’ campaign, P&G’s ‘Thank You Mom’ campaign and Red Bull and Mountain Dew’s sponsorship of several extreme sports and adventurous events also reinforces their differentiated customer experience.
How To Formulate A Differentiation Strategy:
1) Establish Your Position In The Market
This will require a detailed analysis of your company, customers, and competitors. Use an area map to determine the qualitative and quantitative attributes of your business as compared to those of your competitors in the minds of consumers. At this stage, you answer the questions about what you do, what your customers want and what the competition offers. Your aim is to conduct an internal and external audit of your environment to help you connect with the customers and discover important insights.
2) Select The Most Appropriate Strategy
Research your market and identify any potential market gaps and possible customer value differences that provide competitive advantages. Select the best competitive advantage(s) after a consideration of your resources and an analysis of your capabilities and primary strengths. A SWOT analysis is an extremely effective tool when determining which strategy to opt for. Establish what exactly customers want and select a strategy that delivers your differentiated proposition in a unique manner that is difficult, if not impossible, to replicate.
3) Create And Implement The Selected Strategy
Establish which overall differentiation and positioning strategy best serve your purpose. After an in-depth evaluation of the market and your own business, align all your resources accordingly and determine which front you are going to differentiate on; advanced physical features and characteristics, lower or higher pricing, superior service or the creation of a unique or ‘out of the box’ product/service experience.
4) Communicate Your Differentiation Strategy
This step involves communicating the differentiated strategy you have decided on to your target customers and building a strong brand identity through creative and charismatic advertising. In today’s day and age, marketing is all about perceptions; the battle for products is somewhat secondary. It is not always the best products that win, rather those with the most effectively communicated perceptions and value propositions. However, make sure to never falsely communicate your offerings; every aspect of your communication strategy should reflect your actual differentiator.
Advantages of differentiation
- Differentiated marketing allows you to select the specific customer group you wish to serve based on your capabilities, so you can capitalize on your strengths and allocate resources effectively to gain a competitive edge.
- It allows companies to maintain their market shares and enables exponential growth for businesses operating in intensely competitive markets.
- A differentiated product/service enables a business to leverage the strength of its corporate identity and charge a premium price for its offerings.
- Product based differentiation is a major way to build emotional connections with customers in the early brand building stages.
- Differential marketing aims to build mutually beneficial relationships, making it much easier to retain customers and ensure exceptionally high commitment.