When a business seeks to gain a market
share over competitors, it must do so by providing customers with greater value, either by offering a lower price, additional
benefits or exceptional service. This general rule applies to all business organisations regardless of whether they manufacture
a product or provide a service. If the company succeeds, it is almost always because they offered something that differentiated
them from their competitors and thus earned them a competitive advantage. (tutor2u.net, 2007).
Organisations develop differentiation
tactics and strategies through various forms of market research that, when properly analysed, indicate opportunities to provide
something that is more beneficial to their customers than their competitors do. When the company can deliver the same benefits
as their competitors, but at a lower price, this is a cost advantage. If they can deliver additional benefits that their competitors
do not offer, this is a differentiation advantage. In either case, the organisation is able to create better value for its
customers and increased profits for itself through having a competitive advantage. (QuickMBA.com, 2006).
Differentiation Strategy & Focus
The strategy required to differentiate
a product or service and create a competitive advantage necessitates determining one or several criteria used by customers
and then uniquely positioning the business organisation to meet or exceed them. This strategy is often associated with charging
a higher price for the product or service to reflect extra value-added features for the customer. Higher price both accommodates
higher costs and provides good reasons for the customer to select the company’s products or services over competitors.
A good example of this can be seen by considering how premium automobile companies like Porsche, Mercedes-Benz and Ferrari
justify their pricing.
The focus of differentiation strategy
is on a single or limited number of targets or ‘niches’. Generally, these ‘niches’ have been determined
by market research that showed there were unfulfilled market needs among the customers and prospects that make up the niche’s
buyer population. The key, here, is to be absolutely certain that these customer needs really exist within the niche, and
that there is a valid need for differentiation.
It is also reasonable for a business
to seek a competitive advantage by offering a lower cost to a targeted market niche. This generally applies to a smaller number
of customers who consider cost of the essence and thus select an organization’s product or service over the same product
or service offered by leading competitors at a higher price. An example of this would be a retailer offering his own label
or discounted label products. Both cost and differentiation types of competitive advantages are actually positional advantages
because they position the organisation as a leader in either price or differentiation by features and benefits.
A company can also utilise its resources
and capabilities toward creating a competitive advantage of better value. In this view, an organisation promotes its superior
resources and capabilities compared to those of its competitors. These resources would typically include proprietary technologies
and capabilities, unique patents, a more solid, well-established customer base, brand equity and even its established reputation.
In this case, the firm’s capabilities are its ability to bring these resources to bear for the customer’s eventual
benefit. (QuickMBA.com) 2006.
QuickMBA.com (2006) “Competitive
Available from: http://www.quickmba.com/ strategy/competitive_advantage
Tutor2u.net (2007) “Strategy-Competitive
Available from: http://www.tutor2u.net/default.asp