Differentiation and Focus Strategy
Approaches to differentiation include developing unique brand images, unique technology, unique features, unique channels, unique customer service or the like. In other words, the key to differentiation is obtaining an advantage that is readily perceived by the consumer. Increased costs can usually be passed on to the buyers due to the uniqueness of the product attributes.
Firms that do well in a differentiation strategy frequently have the next internal strengths:
- Access to leading scientific research;
- Highly skilled and creative product development team;
- Strong sales team with the ability to successfully communicate the perceived strengths of the product,
- Corporate reputation for quality and innovation.
Firms that are successful in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow geographic market segment, or to a particular buyer group or segment. They also target market segments that are less vulnerable to substitutes or where a competition is weakest in order to to earn above-average return on investment.
Whereas low cost and differentiation strategies are aimed at achieving their objective industry wide, focus is build around serving a particular target or niche extremely well. The strategy is based on the assertion that the firm can serve its narrow strategic target more effectively or efficiently than more broadly based competitors.
The firm may achieve differentiation from better meeting the needs of the particular target or lower costs in serving the target, and may even achieve both. Even though the focus strategy does not achieve low cost or differentiation from the perspective of the market as a whole, it does achieve one or both in its narrow market target.
Often the focus strategy of filling a limited need or offering a product that only a few will purchase, allows for products to be priced at a premium since the firm is satisfying a small group of consumers. Most successful midsize growth companies are leaders in market niches, often in markets they have created through innovation. Such niche strategies are often born of necessity, since these firms lack the resources to fight openly, they succeed by seeking out niches that are too small to be of interest to larger competitors. Alternatively, some firms select niches that can be sustained and protected by serving customers extremely well.
EXERCISE: So, you think you've got it? Let's see... Select the correct answer below: When Toyota entered the American car market in the late 1970's, the company advertised that its cars were far more fuel efficient than American automobiles, better designed, and less expensive. These 3 product differentiators allowed Toyota to gain a considerable share of the US car market. Which strategy did Toyota use according to Porter's framework?
- Cost Leadership Strategy
- Product/Service Differentiation Strategies
- Focus Strategy
- Cost and Differentiation Strategies