Differentiation Strategy

Differentiation stems from uniquely creating buyer value. It can result through meeting use or signaling criteria, though in its most sustainable form it comes from both. A firm's overall level of differentiation is the cumulative value it creates for buyers in meeting all purchase criteria Differentiation will lead to superior performance if the value perceived by the buyer exceeds the cost of differentiation. Differentiation strategy aims to create the largest gap between the buyer value created (and hence the resulting price premium) and the cost of uniqueness in a firm's value chain.

Routes to Differentiation
A firm can enhance its differentiation in two basic ways. It may become more unique in performing its existing value activities or it may reconfigure its value chain in some
way that enhances its uniqueness. Becoming more unique in its value activities require that a firm manipulate the drivers of uniqueness described earlier. A number of approaches characterize successful differentiators:

ENHANCE THE SOURCES OF UNIQUENESS
Proliferate the sources of differentiation in the value chain. Make actual product use consistent with intended use Employ signals of value to reinforce differentiation on use criteria. Employ information bundled with the product to facilitate both use and signaling.

MAKE THE COST OF DIFFERENTIATION AN ADVANTAGE
Exploit all sources of differentiation that are not costly. Minimize the cost of differentiation by controlling cost drivers, particularly the cost of signaling. Emphasize forms of differentiation where the firm has a sustainable cost advantage in differentiating.

CHANGE THE RULES TO CREATE UNIQUENESS
Shift the decision maker to make a firm's uniqueness more valuable. Discover unrecognized purchase criteria. Preemptively respond to changing buyer or channel circumstances.

RECONFIGURE THE VALUE CHAIN TO BE UNIQUE IN ENTIRELY NEW WAYS

The Sustainability of Differentiation
The sustainability of differentiation depends on two things, its continued perceived value to buyers and the lack of imitation by com-petitors. There is an ever-present risk that buyers' needs or perceptions will change, eliminating the value of a particular form of differentiation. Competitors may also imitate the firm's strategy or leapfrog the bases of differentiation a firm has chosen. The firm’s sources of uniqueness involve barriers. The firm has a cost advantage in differentiating.

4. Assess the existing and potential sources of uniqueness in a firm's value chain. 5. A firm creates switching costs at the same time it differentiates. 2. Choose the configuration of value activities that creates the most valuable differentiation for the buyer relative to cost of differentiating. 7. .The sources of differentiation are multiple. Determine who the real buyer is. Reduce cost in activities that do not affect the chosen forms of differentiation. 3. Determine ranked buyer purchasing criteria. Test the chosen differentiation strategy for sustainability. 8. Identify the buyer's value chain and the firm's impact on it. Pitfalls in Differentiation UNIQUENESS THAT IS NOT VALUABLE TOO MUCH DIFFERENTIATION Too BIG A PRICE PREMIUM IGNORING THE NEED TO SIGNAL VALUE NOT KNOWING THE COST OF DIFFERENTIATION FOCUS ON THE PRODUCT INSTEAD OF THE WHOLE VALUE CHAIN FAILURE TO RECOGNIZE BUYER SEGMENTS Steps in Differentiation 1. 6. Identify the cost of existing and potential sources of differentiation.

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