What Is A Differentiation Strategy? (With Examples)

By Chris Kolmar - Dec. 28, 2020
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No matter what stage your business is in, you want to stand out and prove that your product or service has a unique advantage. Ensuring your company is unique can help you at all points, from attracting investors to getting your company started or getting customers to buy.

One way you can make sure you’re offering a unique product is to use a differentiation strategy. Industry leaders across all fields use differentiation to make sure their company and product stand out, no matter what they’re selling.

Differentiation strategies are a simple concept, but they can be hugely influential and rewarding if done well. We’re going to take a close look at differentiation strategies, how to build one, and some great examples you can model your strategy after.

What Is A Differentiation Strategy?

Simply put, a differentiation strategy is a business strategy that revolves around making your company, product, or service unique, so it stands out from other businesses in your industry or market segment.

While you should strive to provide something totally unique to your customer, no matter what industry or market you’re selling in, it’s most important to differentiate yourself within your industry. You want to make sure that your product is different (and better) than any direct competitors’ products.

Other benefits of a strong differentiation strategy are reduced price competition, creating brand loyalty, better profit margins, and eliminating product substitution.

Because of all of these great benefits, implementing a good differentiation strategy isn’t as easy as brainstorming why your company or product is better. But, your hard work can pay off in the long run when you outsell your competition.

Typically, it takes months to form your differentiation strategy, which requires extensive research, testing, implementation, and moving away from your current strategy.

You’ll want to research your sales and analyze where you outperform your competitors. You also need to consider any customer feedback and how you provide a service that other companies don’t. The best differentiation strategies are based on thorough research and analysis.

You should also test out your differentiation strategy if possible. This could mean holding focus groups or even asking friends and family for feedback on new slogans, product design, or anything you decided to change about your product.

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After evaluation and testing, you can implement your differentiation strategy. You should make sure you’re keeping tabs on any changes in sales and analyzing the data to make sure your changes positively impact the company.

Basis of Differentiation

There are three main ways you can achieve differentiation. While the three levels of differentiation are all related, you’ll need to take different approaches to achieve differentiation on all three levels.

Just because you aim to be different on one level doesn’t mean you can’t change things up on all three. Great companies have differentiation at all levels to make them truly unique and one of a kind.

  1. Company. One way to stand out is to make your company unique. Companies that rely heavily on their brand name, brand loyalty, location advantage, or customer support tend to have high company differentiation.

    This means that the company is one of a kind in how they treat their customers, how their brand functions, or that they’re the only competitor in the industry. Customer service is becoming a huge differentiator as companies shift their focus to creating happy customers to turn them into returning customers.

    Finding a way to provide the best customer service in your industry can be one of the best differentiators you use.

  2. Cost. Another way to differentiate your product is to adjust the pricing depending on your customers’ needs and expectations. Commonly, companies will make sure they’re the cheapest product so consumers will choose theirs.

    Other strategies involve maximizing prices, so customers feel like they’re getting an elevated experience. For example, Amazon became popular because people know they can find the lowest prices for any product they’re looking for.

    On the other hand, luxury brands use maximum prices because the high price is part of the luxury and lifestyle that they are selling. Both strategies have their pros and cons; it just depends on what kind of company you are and the product you’re selling.

  3. Product or service. Finally, you can differentiate the product or service you’re selling so that it’s totally different from anything else available. Providing innovative and unique products can be a great way to stand out from others, but it can be costly in terms of time and resources since you need to determine what that unique product is and take time to develop it.

    You don’t have to reinvent the wheel and make something completely new, but you do need to have a product that meets customer needs better than anything else available.

    Typically, having a differentiated product is the most costly route, but it can also have the highest ROI since you’ll have a unique product in the market until others copy you.

Attaining Differentiation

To successfully differentiate your product, you’ll need to go through a lot of research, analysis, and testing to find what works for your company, product, consumer, and industry. There’s no one-size-fits-all approach to differentiation since that would defeat the purpose of creating unique companies or products.

You can get started on differentiating yourself by creating a product that uniquely addresses consumer pain points, providing a product that is innovative and new, adjusting the price of the product based on consumer value and budget, and creating a solid brand identity. To get to all of these, you’ll need to spend time researching your industry, client, and alternatives to your product.

Keeping your customer central to your differentiation strategy is vital. At the end of the day, consumers choose to buy your product, and all of your efforts should be centered around their needs, budgets, and opinions.

Doing lots of research on who your ideal customer is, what they look like or behave like, and how they feel about your product will give you a better differentiation strategy than if you try to create it in a vacuum without understanding your consumer.

When creating your differentiation strategy, there are two approaches you can take. One is a broad strategy where you try to stand out in your industry or differentiate yourself from your competition. This is similar to the company-level differentiation that we mentioned earlier. Broad strategies focus on providing a product or service that has broad appeal so you can reach a wide market with your offerings.

The other strategy is a focused one where you appeal to a niche market and make sure your product is perfect for that small population. For this, you’ll want to have an idea of what you’ll be known for and have a lot of knowledge about your small target audience so you can optimize for their tastes and needs.

You can make yourself unique to a small audience based on all three levels of differentiation, and all three work well to help you stand out in your niche market. If you’re choosing a niche product or service, you may have less competition. Still, your competitors will be just as fierce and motivated as you, so good differentiation is critical in these markets.

Examples of Differentiation

It can be hard to think of ways to differentiate your company without examples and models to look to. But, differentiated companies are everywhere, and you might not even realize that your favorite places to shop or eat at have done a great job of making their products and services unique.

One way to tell that a company succeeded in differentiating itself is to look for imitators. If a bunch of new companies sprang up and tried to copy the product or concept of another company, you can be safe in assuming that the original company had a great idea.

Let’s take a look at some popular examples of differentiated companies:

  • Apple. While there are tons of tech companies out there, Apple has successfully differentiated its products over the years through innovation and product design. Their unique operating systems make them stand out from their competitors, while all of their products have a more elevated and sleek design than their counterparts.

  • Amazon. The e-commerce giant is at the top of everyone’s list when you need something. They’ve distinguished themselves as a company that sells nearly everything at the lowest prices and with extremely fast service.

  • Lush. The cosmetics brand stands out because of its DIY and handmade approach to beauty. They established their products as ethical and handmade, whereas their competitors provide manufactured and impersonal products.

    They also worked to create a unique and hands-on customer experience in their stores where you can try things out and get to know the products before you buy.

  • Emirates. There’s lots of competition for airlines, but Emirates made themselves stand out while also charging high prices. They built their brand on amazing customer service and access to the latest in-flight technology.

    Customers are willing to pay the extra few hundred dollars to fly with them instead of a cheaper competitor.

  • Chipotle. Chipotle revolutionized fast food and created the fast-casual trend. Their commitment to providing fresh food in a quick and relaxed atmosphere was then copied by companies around the world.

  • Hermes. This luxury brand is home to some of the most expensive clothes and accessories, but that doesn’t stop thousands of people from buying their products. They made sure to create products that are always up to an extremely high-quality standard, making their high cost seem worth it.

    They also worked to create exclusivity and make their products a status symbol since so few people can get their hands on their handbags each year.

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Chris Kolmar

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Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.

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