To avoid the trap of turning a product into a commodity that consumers buy with regard only to price, businesses can employ a differentiation strategy. A differentiation strategy entails the development of products with particular features that improve the perceived value of the product and justify higher prices. Successful implementation of a differentiation strategy calls for a combination of elements
Differentiation depends in large part on the market segment to which the business currently or plans to sell products. Businesses can employ a number of marketing research methods, including surveys, questionnaires and focus groups, to define the general parameters and specific kinds of differentiation customers find worth premium pricing. The business may discover its customers are willing to pay premium pricing for more than one type of differentiation or that they find only one type of differentiation of value. In the former case, an analysis of the implementation costs and the projected profit can prove useful.
Differentiation can take one of several forms. The business can differentiate on the basis of specific features of the end product, such as bells and whistles other companies do not include. The business may also differentiate on the basis of special elements of production, such as unique processes or materials the business controls. Better performance, when quantifiable, can provide another option for differentiation. To succeed in implementing a differentiation strategy, the business needs to select one type of differentiation best suited to target market desires, as well as its own financial constraints, and focus its efforts on honing products along that dimension.
Building a product with enhanced features, performance or unique production elements only gets the business part of the way to successful implementation. The business must then communicate the differentiation to distributors, retail outlets and end users. An effective sales force with the appropriate training will communicate this differentiation to distributors and retailers. Marketing, such as advertising campaigns and brand building, communicate and support the end user perception of the differentiation. The business should review all marketing and advertising materials prior to distribution or broadcast to guarantee the differentiation takes center stage. Advertising on differentiation and branding is a long-term process and can prove expensive.
A successful implementation of a differentiation strategy, while drawing in business, can also limit its useful life. Other businesses can copy new features and offer them at a discount, which erodes market share. Consumer interest in products can wane as trends change, and a failure to continue improving or innovating can leave a product line looking outdated or outclassed by new technology.