Product Differentiation is a marketing strategy used to stand out from competitors. By focusing on what makes a product or service unique in the marketplace. It involves creating specialized products that gain a competitive advantage with a particular segment of the market
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Definition
Philip Kotler defined differentiation as “ The act of designing a set of meaningful differences to differentiate the company’s offering from competitors’ offerings.”
Differentiation is a key component of a successful marketing strategy. As it allows a brand to distinguish itself from its competitors and attract and keep customers.
In this article, we will discuss the five types of differentiation and how businesses can effectively implement them to improve their marketing efforts.
Types of Differentiation
- Product Differentiation: This type of differentiation involves offering unique products that are different from those offered by competitors. This could include new and innovative products, better quality products, or improved customer service.
- Services Differentiation: This type of differentiation involves offering unique services that are different from those offered by competitors. This could include improved customer support, custom services, or faster delivery times.
- Personnel Differentiation: This type of differentiation involves using unique personnel strategies to set a brand apart from its competitors. This could include training programs, employee incentives, or a focus on customer service.
- Channel Differentiation: This type of differentiation involves using unique distribution channels to reach customers. This could include exclusive retail outlets, online stores, or mobile apps.
- Image Differentiation: This type of differentiation involves creating a unique image or brand identity that sets a brand apart from its competitors. This could include unique branding, advertising campaigns, or social media marketing.
Diverse Differentiation Possibilities for Various Industries
By this point, the notion of differentiation should not be foreign to you. But, the available differentiation opportunities may differ depending on the nature of the industry. The Boston Consulting Group categorizes industries into four types, taking into consideration the size and the number of competitive advantages at their disposal.
BCG Matrix for Competitive Advantages
As shown in the matrix below, BCG distinguishes industries based on their size and their exceptional benefits.
The four types of industries, as classified by the BCG matrix, are:
- The Volume Industry
- The Stalemated Industry
- The Fragmented Industry
- The Specialized Industry
Each industry type boasts its own set of peculiarities, which we will delve into shortly.
Volume Industry
Volume industries are characterized by high market share and low market growth rates. In these industries, firms are usually fighting for market dominance and are often in a price war. To succeed in a volume industry, firms need to have a strong brand, cost-efficient operations, and a large scale of production.
Some examples of volume industries include the fast-moving consumer goods (FMCG) industry, the automobile industry, and the consumer electronics industry.
Stalemated Industry
Stalemated industries are characterized by low market share and low market growth rates. In these industries, firms are usually competing on the basis of price, quality, and service. Firms in a stalemated industry may struggle to grow and increase their market share. To succeed in a stalemated industry, firms need to have a strong brand and efficient operations.
Some examples of stalemated industries include the tobacco industry, the soft drink industry, and the steel industry.
Fragmented Industry
Fragmented industries are characterised by low market share and high market growth rates. In these industries, firms are usually competing on the basis of price and quality. Firms in a fragmented industry may struggle to achieve economies of scale and increase their market share. To succeed in a fragmented industry, firms need to have a strong brand, innovative products, and efficient operations.
Some examples of fragmented industries include the technology industry, the biotechnology industry, and the renewable energy industry.
Specialized Industry
Specialized industries are characterized by high market share and high market growth rate. In these industries, firms are usually competing on the basis of quality, service, and innovation. Firms in a specialized industry have a strong brand and a loyal customer base. To succeed in a specialized industry, firms need to have a strong brand, innovative products, and efficient operations.
Some examples of specialized industries include the luxury goods industry, the fine wine industry, and the artisanal food industry.
Advantages and Disadvantages of Differentiation
Each type of differentiation has its own advantages and disadvantages. And it is important for businesses to weigh these before implementing a differentiation strategy.
Product differentiation, for example, can help a business to stand out in a crowded market and attract customers with unique products. However, it can also be expensive to research and develop new products, and there may be limited demand for these products.
Services differentiation can help a business to improve customer satisfaction and loyalty by offering unique services. However, it can also result in higher costs for providing custom services or improving customer support.
Personnel differentiation can help a business to attract and retain employees by offering unique employee incentives or training programs. However, it can also result in higher personnel costs.
Channel differentiation can help a business to reach new customers and offer a unique shopping experience. However, it may also result in higher costs for setting up exclusive retail outlets or developing unique online stores.
Image differentiation can help a business to stand out in a crowded market and build brand recognition. However, it may also be expensive to develop unique branding, advertising campaigns, or social media marketing strategies.
Implementing Differentiation in Marketing
To install a differentiation strategy. Businesses must first understand their target market and the needs and preferences of their customers. This will help to determine which type of differentiation is most suitable for the business and its target market.
Once the type of differentiation has been determined, businesses must then develop a clear plan for implementing it, including setting goals, allocating resources, and measuring the results of the strategy.
In addition, businesses must also continuously track the market and their competitors and adjust their differentiation strategy as needed to remain competitive.
Personnel Differentiation Unveiled
Forging a memorable brand image for a business or its offerings is a savvy way of establishing marketing prominence. This strategy is particularly beneficial for companies where physical design plays a minimal role.
Such differentiation can grant a firm a competitive advantage, as the marketer aims to craft a captivating “aura” for the product that sets it apart from rivals in intangible ways.
Examples of such differentiation can be seen in various industries, such as airlines before deregulation when differentiation was virtually restricted under IATA regulations. Nonetheless, certain airlines managed to cultivate unique “personalities,” resulting in a friendly, effortless image that separated them from other airlines on the same routes.
Similarly, hotels are known for their atmospheres, giving them an exceptional quality that competitors cannot replicate.
In constructing a personality for an organization, six key attributes should be imbued in its personnel:
- competence,
- courtesy,
- credibility,
- reliability,
- responsiveness, and
- communication.
Conclusion
Differentiation is a valuable tool for businesses looking to stand out in a crowded market and attract and keep customers. By understanding the different types of differentiation, their advantages and disadvantages, and how to effectively install them, businesses can improve their marketing efforts and achieve greater success.