Many businesses choose a differentiation strategy rather than a cost leadership one when formulating their overall business plan.
That is to say, rather than working to cut costs and improve internal operations, they are trying to find a way to make their product or service stand out from the crowd.
When competing with similar products, a differentiation strategy can help you stand out from the crowd by offering your clients something they won’t find anywhere else. However, the reality isn’t often as appealing.
Here, we’ll discuss some potential pitfalls that can arise while developing a plan that differentiates itself from the competition and how to prevent them.
As such, let’s jump right in:
Mistaking similarity for difference
A good differentiation strategy enables you to gain a competitive advantage over competing businesses.
One outstanding example is Apple, a corporation that’s associated with additional product costs justified by the unique beauty of their products and the ongoing usage of the latest advancements and technology.
The loss of your competitive advantage, however, is one of the main threats many businesses face when pursuing a differentiation strategy.
You can easily join the pack you’re trying to avoid if you don’t find a way to set yourself apart from the competition.
Is there anything you can do to lessen the danger?
Selecting a sustainable point of differentiation that will remain relevant over time is one strategy to minimize or lessen the impact of this risk.
Consider a restaurant that stands out due to its exceptional physical position, such as on the top floor of a skyscraper with a breathtaking view.
If the business ever had to relocate (maybe the rent increased too much), it will no longer have the same appeal to customers. The restaurant, for instance, might have differentiated itself by emphasizing the high quality of its food, an aspect that could have been maintained over time.
In this way, people will continue to visit the restaurant because of the food, regardless of where it is located.
Being imitated by rivals
The threat of having their differentiation technique mimicked by rivals is the next issue we’ll look at.
Naturally, competitors will always want to replicate you in some way, and you can’t always stop them no matter how great your distinction point is. The risk must, however, be minimized.
Consider mobile phones; ten years ago, there were countless makes, models, and form factors available.
Today, most smartphones, if not all, almost look the same — flat, and wide, with conventional sizes and little to no buttons. The colors of some of them are different, but we usually cover them up for security reasons so that you can’t tell what color they actually are.
That is why it is important to protect your differentiation strategy against the threat of having your product or service duplicated to the point where you no longer have any competitive advantage.
What can you do to lessen this risk?
This is a more nuanced threat to our differentiation approach because it is dependent on the kind of the product or service you’re providing. If you have an inventive product and want to sell it, for instance, you should get patents for it in every relevant country.
If this happens, your company will still be protected from copycats through the courts.
However, it is more difficult to prevent rip-offs when discussing services because they are difficult to patent. Of course, this also means that services are more challenging to replicate due to the fact that they may necessitate specialized tools or labor-intensive procedures.
Assume, for the sake of argument, that your marketing firm offers triple the normal rate for its exceptional SEO services because of the superior outcomes they provide. To match your level of service, a competitor would have to either hire or steal SEO experts on par with your own team.
To reduce the dangers associated with your differentiation strategy, you must first pinpoint its origin and then guard it zealously.
One of the most significant dangers of using a strategy of difference is the possibility that customers would be dissatisfied. Differentiation strategies are often connected with higher prices, in contrast to cost leadership, which relies on lowering costs to capture a large part of the market.
This is not always the case, but it holds true in the vast majority of situations: businesses try to differentiate themselves by offering something new and exciting, and consumers gladly pay a premium for this.
On the other hand, if you raise prices without improving quality, clients may not see your wares as particularly special and refuse to pay the higher costs. Think about Apple once more; many individuals don’t understand why they should buy an expensive product from the company.
How can you reduce this risk?
When discussing the dangers of a differentiation approach, it’s important to note how challenging it can be to meet customers’ widely differing expectations. If your product doesn’t measure up to their expectations, they’ll be quite unhappy and may even cancel their purchase.
If you want to lessen the likelihood of this happening, one of the most important things you can do is to follow through on your commitments. If you can’t back up your USP with the necessary tools and manpower, you should either tone it down or look elsewhere.
From my perspective, Siteground is a terrific example of a company that is exceeding customer expectations. Their lightning-fast, consistently reliable customer support is why I am willing to pay a premium for their hosting.
In fact, they never take more than a few minutes to reply in the chat, and they can handle any problem with minimal effort. They are able to deliver on their promise because they have made substantial financial investments in infrastructure, including both hardware and personnel.
Presenting yourself in an ineffective manner
One more danger that many businesses face when attempting to differentiate themselves is the loss of value. A product or service’s distinctive value can set it apart from competitors, but if that value isn’t communicated clearly to clients, they may not see it in the same light as you do.
Suppose you have developed a revolutionary new method for eliminating dandruff from the hair, and you want to sell your product as the best dandruff shampoo available. You could put some hard evidence of its quality on the bottle’s label, but instead you’ve opted for a flashy bottle and a label that don’t say much.
How can you reduce this risk?
While consumers’ tastes vary, we can all agree that if you can’t defend your product’s cost to a potential buyer, they won’t buy it. Because of this, it is crucial to provide convincing evidence to customers, explaining why they should pay more for your goods than competitors.
Function of Beauty is an excellent example of a corporation that successfully communicates the benefits of its product. When you can buy shampoo at the grocery for $5 a bottle, why are you paying $50 or more for only one?
A totally personalized shampoo that responds to your hair’s kind, structure, and moisture level is what sets them apart, and this is something they make sure to emphasize on their website and in their marketing materials. And the prices are going up because people want it so much.
Choosing a fuzzier dividing line
Weak differentiation points are the final threat to your differentiation approach. What we consider to be novel and cutting-edge may not always be viewed favorably by our intended market, or it may be a product that consumers have no use for since it does not solve a problem or improve their lives in some other way.
The LG G-flex is an example of a product that attempted to differentiate itself but ultimately failed. The business was so intent on innovation that it failed to see that its product was not what customers wanted.
The LG G-flex, a smartphone with a slightly curved screen designed to provide a more comfortable and immersive viewing experience for movies, was released in 2013.
Unfortunately, the screen ended up being unpleasant and useless most of the time because 99% of customers use their cell phones for general tasks other than watching movies. As time went on, production ceased on the model.
In what ways can the potential danger be mitigated?
Extensive study is the key to mitigating this threat to our differentiating strategy. You should know exactly what problems your product or service solves for your target market before you release it.
Gather as much information as you can from current and potential clients, objective third parties, and others before you begin building your product. Research and investigate the market thoroughly. The issue you should ask yourself is whether or not the product satisfies a genuine demand, or if it is only novel in the abstract.
Products that don’t address real consumer pain points tend to tank in sales.