Michael Porter, one of the foremost academics on the subject of competitive strategy, suggests within his various publications that differentiation is one of the most practical ways in which a business can gain advantage over other players in their industry sector. Differentiation can be achieved through the adoption of a number of unique strategies or processes.
One popular method of differentiation, which has been increasingly adopted by corporations across a whole range of industries in recent decades, is the “low-cost” business model. This model has become particularly prevalent in the supermarket sector, and “Low Cost Carrier” airline sector.
The unique element of the “low cost” model is that the whole of the business structure and supply chain is geared towards achieving a low cost base. Taking the airline example as an instance, it is apparent that companies like Ryanair, South West Airlines and others have benefited from the fact that their corporate structure and the resources used are much smaller than national carriers like British Airways and American Airlines are. This means that they are able to maintain profit margins at a reduced product cost.
Furthermore, the budget airlines have increased their differentiation by promoting a “no-frills” approach to ticket prices. By reducing elements of customer service, this has enabled flights to be offered at much lower prices than was the case in the past. The combination of these actions have led to the opening up of a completely new consumer market as well as encouraging some travellers to defect from the more established airlines.
However, differentiation does not have to be cost led. It can also be focused upon quality and choice, with cost and price being a secondary factor. Examples of this approach can be found in the fashion industry. In the UK, recently this industry has been attacked by “low-cost” organisation in the form of supermarkets and fashion discount stores. Although low-price competitors have secured a reasonable market share, many of the high quality fashion stores are still thriving. The reason for this is that they have concentrated their efforts on quality and the uniqueness of choice, which appeals to those consumers who do not like the “mass market” product and approach.
This “quality and choice” approach is also be referred to as a “niche market” differentiation, where organisations look for areas of the industry where they can compete in a manner that cannot be emulated by the major competitors. In the case of fashion, because the mass-market retailers have built a reputation for low price it would not be easy for them to incorporate a high quality and product range within their existing supply chain.
Another differentiation over competitors can be achieved by simply change to or creation of a new product. For example when Apple originally developed the iPod, the product provided a new and unique means of providing mobile music entertainment for consumers. The difference of this product from others within their range gave the corporation a completely new marketplace, which enabled them to create a significant competitive advantage. Other electronic giants, particularly those from Japan, have successfully adopted similar tactics.
Another area of differentiation, and one which all businesses should strive for, is that which pertains to customer service.
If a business if offering a similar product within the same price range as other competitors, how can it create a differentiation that will encourage the consumer to prefer their business to others in the marketplace? The answer is to concentrate upon the creation of a better service experience for the customer. Customers are more likely to become loyal if they believe that their demands, expectations and needs are being meet, and that they are being provided with a quality service from the organisation.