An element of horizontal differentiation includes having a variety of products that do not differ in quality or price point. Broad Differentiation Strategy is quite unique and brings about many Examples. advantages and disadvantages of differentiation strategy pdf. Broad Differentiation Strategy. With a stellar product that demands top dollars, you also don't need to sell as much product to generate high revenue and profits. Product Segmentation, Privacy Notice/Your California Privacy Rights. Research will show whether Kroger uses an offensive or defensive strategic approach to business practices. Kokemuller has additional professional experience in marketing, retail and small business. A company having a better product compared to its competitors can carve out its place in the business community. To be successful in using broad-differentiation strategies the firm should have adequate adaptive advantages that would allow it to continuously innovate or be able to leverage economies of scale (that comes with selling to the masses) to create sustainable differentiation. Michelle Barry graduated from Salve Regina University with a Bachelor of Arts in English. With this strategy, the objective is to become the lowest-cost producer in the industry. An advantage of this is that it allows you to cover the preferences and tastes of a wide variety of consumers. Product differentiation is economically advantageous to a company. An advantage of this is that it enables you to capitalize on the price points of all consumers shopping for your product. Focus strategy, a key part of other marketing strategies that include low cost and differentiation strategies, offers the following advantages. In the case of differentiation, a key advantage is that effective differentiation creates an ability to obtain premium prices from customers ("Executing a Differentiation Strategy" [Image missing in original]). This sustainability becomes a tremendous advantage when economic circumstances take a turn for the worst. These three broad types of competitive strategies have also been labeled generic strategies. C)products of rivals are weakly differentiated. Finding companies that have a sustainable advantage through their differentiation strategy is something that in time can not be copied or imitated. The Disadvantages of Differentiated Marketing. Types of Strategies – Cost Leadership ,Differentiation , Focus. In the case of differentiation, a key advantage is that effective differentiation creates an ability to obtain premium prices from customers ("Executing a Differentiation Strategy" [Image missing in original] ). Product differentiation means that your product has one or more distinct attributes that separate it from competitors. Porter asserts that a business model can’t offer the best product or service at the lowest price and maintain a sustainable competitive advantage. Differentiation strategy 1. These are ordinarily distinct groups that have specialized requirements. Better consumer satisfaction Through adopting the focus strategy, a firm ideally focuses on specific target markets. With multiple price points in products, you can have shoppers of all budgets covered, pulling revenue from competitors. Cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience (learning curve). In this post I’m going to be focusing on differentiation, but it is important to understand why differentiation is a strategy and how it relates to competitive advantage. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry. Provides economic benefits. A cost leadership strategy is where the price may be similar or usually lower than the competition, but costs are certainly lower. This contrasts with a more universal, mass market approach, in which the same product is … Here are some of the benefits. Additionally, by going for product differentiation rather than a low cost, you effectively eliminate budget-conscious buyers who can't afford your higher prices. When vertically differentiating your products, you can have some products of high quality, some of mid-level quality and others of low quality. A concern with a product differentiation strategy is the investment you typically have to make to produce or acquire a top-notch product. in one or more useful competitive advantages only after competitors’ efforts to duplicate its strategy ... differentiation strategies, and (3) focus strategies. But more important and effective than this is how Nike makes its customers feel. Differentiation strategies have several advantages that may help you develop a unique niche within your industry. In business strategy, cost leadership is establishing a competitive advantage by having the lowest cost of operation in the industry. When a price or trade war happens, or there is a downturn in the local economy, it is the companies with the lowest cost of doing business that will have the greatest chance at survival. Not having to compete with commodity products on price leads to higher profit margins. Firms that compete on uniqueness and target a broad market are following a differentiation strategy. If a firm has a product that is high in demand the firm can price it higher. The strategy of the broad differentiator was the teams choice, because we thought that it would be the most difficult to accomplish, would take the most time, and provide us all with a well rounded learning experience because we would be able to learn how to be successful in both the low and high tech segment with our products instead of just one of the segments. Posted October 11th, 2020. Your target customers in this case are more discerning, and willing to pay extra for better value or top quality. Strategy The Kroger Company uses the broad differentiation strategy. While having a quality product is good, being able to develop and articulate the qualities or features that clearly make one product better than the competition is important to attracting value-oriented consumers. He has been a college marketing professor since 2004. Problem 76SAQ from Chapter 5S5.3: What are the pros and cons of a broad differentiation strategy? differentiation strategy advantages and disadvantages. The approach relies on the company’s business model and value chain, which satisfy customers partly through personalized customizations, such as … Houghton Mifflin Company Price Segmentation Vs. Because of this, your marketing, sales and service costs are often higher as well. This makes it easier to generate interest and close sales. Up to four multiple pays for customers because of how they work or how the products perform, but how brands think to people: “If you want to steal share in this crowded market, your brand must recognize that a consumer is a … Horizontal differentiation has similar products that vary in ways that are often superficial and do not impact price or quality. Pursuing a differentiation strategy requires a larger financial investment from the company, another weakness. It will also discuss competition and strategy from rival company Walmart. This creates more pressure to … After comparing, the company creates a list of characteristics its products contain that the competition’s products lack. If you succeed, you can make up for these costs in higher revenue, but the downside risks of steep losses are present. You do not have to compete on price alone.Since you have distinguished yourself from your competitors the prospective client cannot reduce their choice to the dimension of cost alone. A Cost Leader is where the company has … What are the pros and cons of a broad differentiation strategy? A company that produces only chocolate ice cream but is well known for having the highest-quality, and best-tasting chocolate ice cream has its own realm of appeal. 1. It allows firms to shield themselves from the competition. Here are some of the benefits for companies using a broad differentiation strategy: Ability to apply premium pricing to products or services deemed by consumers as different A distinguished, better-quality product also offers greater profit margin opportunities than selling with a low-cost or alternative approach. For many decades, Porsche pursued a focused differentiation strategy (see Exhibit 6.2 in Chapter 6). The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. The corporate strategy in these cases is about the basic direction of the firm as a whole. Loose-Leaf Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases (18th Edition) Edit edition. A company having a better product compared to its competitors can carve out its place in the business community. At the core, all differentiation strategies attempt to make a product appear distinct. With a product differentiation strategy, though, explaining and demonstrating why your brand is the best option and value is key. These are the target market (broad or narrow) and competitive advantage (low cost or differentiated). It helps to build strong relationships within each target market. A broad differentiation strategy is generally not suitable for attaining a competitive advantage when A)buyer needs and preferences are too diverse to be fully satisfied by a standardized product. In 2007, department store Dillard’s stopped carrying men’s sportswear made by Nautica because the seafaring theme of Nautica’s brand had lost much of its cache among many men (Kapner, 2007). Differentiation Strategy Prof. (Dr.) Nitin Zaware Prof. (Dr.) Nitin Zaware 1 2. Power Point Set #5: Business Level Strategy: Cost and Differentiation Advantage Business Strategy and Competitive Advantage A business-level strategy is an integrated and coordinated set of commitments and actions designed to provide value to customers and gain a competitive advantage by utilizing core competencies in specific individual product markets. Cost Leader. From Porter's point of view, strategic management should be interested in building and maintaining a competitive advantage. Everything becomes easier when your strategy is narrowly focused on a single market segment. ADVANTAGES: The differentiation would act as a barrier to the business entrants; The company could set a higher price to suppliers; and; Reducing the bargaining power of the buyer because differentiated products can’t be easily copied. B) The marker of good management is a solid strategy that focuses on customer value above all else. Differentiation Strategy. While an advantage of this is that it allows you to capitalize on a wide range of consumer quality preferences, it also can be a disadvantage. See the answer. 1. One strength of a differentiation strategy is that it builds on the unique qualities in a product. What Are The Pros And Cons Of A Broad Differentiation Strategy? What Internal & External Factors Affect Market ... What Internal & External Factors Affect Market Segmentation? 1. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. All of these are incredibly necessary internal metrics, however, none of these matter to the customer — This is all great information for the company to have as its control panel, but these metrics have extraordinarily little that matters to customers. Competitive Strategy is about applying offensive or alternatively defensive actions to create a advantageous position within marketplace, with a purpose to deal with issues effectively with competitive forces in addition to come up with a much better return on investment.. B)few rivals are pursuing a similar differentiation approach. While an advantage of this is that it allows you to capitalize on a wide range of consumer quality preferences, it also can be a disadvantage. What Does a Low Gross Profit Percentage Mean? At the moment, the business environment is characterized by a high rate of dynamism as a result of technological advancement, coupled with a high rate of globalization. A differentiation strategy is where the product or service is either perceived to be, or is, of superior customer value and has a definite price premium. New Product Pricing Vs. Market-Penetration Pricing, BusinessDictionary.com: Product Differentiation, Washington State University: A Definition of Advertising. All three generic strategies are designed to achieve distinction relative to a rival. There are some big advantages to using a differentiation strategy. There are advantages and disadvantages to differentiating your products, no matter which type of differentiation best suits your company. Question: What Are The Pros And Cons Of A Broad Differentiation Strategy? Each generic strategy offers advantages that firms can potentially leverage to enjoy strong performance, as well as disadvantages that may damage their performance. These categories are: Starbucks employs a broad differentiation strategy. I previously touched upon Michael Porter’s generic cost leadership strategy here. Another implication of product differentiation is that very often, it brings brand loyalty into the picture. Often the cost of production and distribution is only marginally higher than in a cost leadership strategy; however, perceived quality differences allows the selling price to be set at significantly higher points. This enables a firm to enjoy strong profit margins. It creates more capital that can be used for growth. 1. Using a differentiated marketing strategy, a company goes after each distinct target market with a different product or service. 2. While it is likely to have a lower market share than a firm following a cost leadership strategy, profits are high due to the perceived product and service differences among customers. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry. © 2019 www.azcentral.com. A concern with a product differentiation strategy is the investment you typically have to make to produce or acquire a top-notch product. When you differentiate the quality of your products, you are able to differentiate the cost as well, another aspect of vertical differentiation. It is because once a consumer is satisfied with a few pr… When a company efficiently differentiates its products, and few essential products stand out, it usually brings out brand loyalty on the consumer’s part. The differentiation can be about colors, packaging, shapes, flavors, etc. Higher margins make it easier for you to cover fixed costs and operate a profitable business. This is part of the reality of target marketing. Overall, there are pros and cons to differentiating your products. Download Solution: Click to Download Solution Solution File Name: Porsche.docx Unzip Password: prestobear.com 1. When vertically differentiating your products, you can have some products of high quality, some of mid-level quality and others of low quality. This differentiation strategy involves using the characteristics of the product you market to differentiate from your competitors. Broad differentiation, broad cost leadership, and _____ create the three generic strategies identified by Porter. Every brand is built on a product (I include services here as well). Since then, she has worked as a reporter for the Wilbraham-Hampden Times, an editor for Month9Books and Evolved Publishing, editor and has spent the past seven years in marketing and graphic design. earn… Business-level strategy is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. Cost Leadership and Differentiation. It will discuss mergers and acquisitions of The Kroger Company (Bethel University, 2017). Competitive Advantage cannot be fully understood by considering an organisation in general. The big risk when using a differentiation strategy is that customers will not be willing to pay extra to obtain the unique features that a firm is trying to build its strategy around. The policies to appeal to broad markets can be contrasted with strategies that target a relatively narrower niche of potential customers. Part of vertical differentiation is the range of quality of the products produced. 1. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. W. L., & Jones, Gareth. Cost leadership strategy and differentiation strategy share one important characteristic: both are used to attract customers in general. Especially in a tough economy, you have to really succeed with more affluent customers if you price your products above what a significant segment of the population can afford. Here are some of the benefits. Your … R. (2007). In contrast, a company with more than 100 flavors of ice cream can be known for having a flavor for everyone. In this strategy, the company will pursue to gain a competitive advantage by providing unique brand of sensors. Differentiation strategies are attractive whenever buyers’ needs and preferences are too diverse to be fully satisfied by a standardized product or service. Focus the differentiation strategy on the quality and design of your products and gain a competitive advantage in the market without decreasing their price. This strategy is concentrated on a broader segment of the total market. As indicated, a differentiation strategy serves a broad market. Advantages of Differentiation. Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. Advantages of Product Differentiation . There are some big advantages to using a differentiation strategy. Vertical differentiation refers to products that fall on a scale from best to worst, highest to lowest, impacting the overall functionality of the item. But more important and effective than this is how Nike makes its customers feel. This broad approach of the generic strategy aligns with Netflix’s intensive growth strategies, which prioritize market penetration. Because customers perceive the unique customer service or product features as special, a company following a differentiation strategy is typically less sensitive to price fluctuations than the general market. The company analyzes the specific product and compares it with similar products offered by competitors. By successfully delineating your product's uniqueness, and the benefits of such features, you can make it easy for your customers to perceive the value. He holds a Master of Business Administration from Iowa State University. Cost Leadership. Cost Leadership. Economics Web Institute: Product Differentiation, More For Small Business: Product Differentiation Helps You Build Competitive Advantage. C) good management consists of good strategy and good strategy execution. A product differentiation approach does have some drawbacks, though, relative to other business strategies. It will also reduce the speed to which an organization is able to adapt to changing circumstances. This creates more pressure to stimulate customer demand and to maintain a reasonable sales price to drive revenue and profit. You have greater appeal to your target audience.Since you are different, and presumably better, you make a more appealing choice. If a firm has a product that is high in demand the firm can price it higher. Broad differentiation is a kind of differentiation that range from products to services. Marketing is intended to help convey to target customers your brand and your product's unique value proposition. Differentiation in business refers to the act of marketing a particular product or service in a way that makes it stand out against other products or services. Pros and cons of differentiated instruction. Broad Differentiation Strategy is quite unique and brings about many Examples. Another adv… It allows firms to shield themselves from the competition. 4. Using a clear strategic profile as a focused differentiator, Porsche was very successful and very profitable. Two types of differentiation strategy: Broad differentiation strategy: presents a view of differentiation that is far more inclusive because they do not make distinction between the premium price quality segment on the one hand and mid price segment on the other. Unique Product. This problem has been solved! And the sales team can use them to demonstrate the product's competitive advantage. Advantages of differentiation strategy. 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