Differentiation Strategy: Definition & Examples

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  • 0:05 Differentiation…
  • 0:39 Differentiation…
  • 1:14 Successful…
  • 1:56 Pros & Cons
  • 2:54 An Example
  • 3:48 Lesson Summary
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Lesson Transcript
Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

In this lesson, we'll learn about differentiation strategy. We'll define it and look at important characteristics. The lesson will then discuss the pros and cons of differentiation strategy.

Differentiation Strategy Overview

Let's imagine that you're the owner of a small hunting store. With fall deer season fast approaching, you're getting prepared for the high demand for hunting supplies. Since hunters are always looking for the latest and greatest equipment, you realize that to compete with the large local box store, which also sells hunting supplies, you'll need to gain a competitive advantage. To do this, you need to offer something that attracts customers to your store; something that's so appealing that consumers are willing to pay higher prices just to own it. What you need is a differentiation strategy.

Differentiation Strategy Defined

So what is differentiation strategy? It's an approach that a business takes to develop a unique product or service that customers will find better than or in another way distinctive from products or services offered by competitors. Differentiation strategy is a way for a business to distinguish itself from the competition. If successful, it allows the business the opportunity to charge a premium for the good or service. Keep in mind, however, that the business often encounters higher costs to offer the unique product or service and thus, needs to be successful in attracting customers to cover that extra cost.

Successful Differentiation Strategy

So, what must a business do to successfully implement a differentiation strategy? Businesses that are successful often have the following characteristics:

First, they have access to the latest, cutting-edge scientific research. They also have personnel who are very skilled and have creative ideas, allowing them to develop products that meet consumers' wants and needs. Additionally, companies that have successful differentiation strategies, typically have sales teams that can explain why their products are better than the competitors' products. And, finally, these companies generally have a reputation for creating innovative, high-quality products, which makes consumers more likely to conduct business with them.

Pros and Cons

Like many other strategic business plans, differentiation strategy has both pros and cons. Let's start with the pros. First, if a company has a product that's wanted above those offered by the competition, it's able to charge more money. Because there aren't any alternatives to the highly demanded product, the company can price the product or service higher. And when a company offers a superior product, it develops a strong identity as a company. This builds customer loyalty.

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