Every business owner knows that business growth and success are significantly linked to staying ahead of the competition. If a business does not have a competitive edge, it will likely struggle to grow. This is why companies try as much as possible to distinguish themselves and stand out; this is where differentiation comes in. As a business owner, you should know what this word means and how to use it to benefit your company. Luckily, this article has been written to help you with that; here, you’d get the answer to the question, “what is differentiation in business”.
This article also explores other important things that you, as a business owner, should know about this concept.
At the end of this article, you should have every necessary information to use this business strategy to take your business to the next level.
But do not take our word for it; read this article to the end to find out.
Meaning of Differentiation in Business – What is Differentiation in Business
Differentiation is a business strategy that businesses use to make themselves unique and stand out from their competitors.
It is a business strategy where companies offer their customers something distinct from their competitors.
The sole purpose of differentiation is to stand out, aiming to increase a company’s competitive edge.
A company can use any aspect of its process to distinguish itself from its competition.
For instance, a company can use its prices to give itself a competitive edge.
Likewise, it can add something unique to its product that the consumers would love.
Differentiation is all about offering customers better value than what your competitors are offering.
However, this is not something that a company should jump into.
For a company to implement a differentiation strategy, it must do so after careful consideration and evaluation.
It needs to conduct market research to analyze its weak points and strengths, its customers’ needs, and how it can add value to its offerings.
You’d get to learn more about all these subsequently, but before then, let’s look at the different types of differentiation.
Types of Differentiation – What is Differentiation in Business
There are 2 major types of differentiation; broad and focused differentiation.
Whichever one a company decides to implement is typically based on its needs.
This is why you need to understand the difference between them.
That way, you could choose the best one for any given situation.
As you can tell from the name, this type of differentiation covers the entire company.
It involves building a business that’s significantly different from its competition.
Broad differentiation can also be industry-wide.
This one is more streamlined than its counterpart.
It typically involves a business offering unique features in its services or products.
It often focuses on a narrow market or a particular niche.
Advantages of Differentiation – What is Differentiation in Business
So far, you know that applying this strategy in your business would give you a competitive edge.
But this is just the main objective of the strategy.
It offers several other advantages that would generate the results you want.
If you are wondering whether or not to use this strategy in your business, knowing these advantages will likely help you decide.
The following are 5 of the best advantages of differentiation.
Different Approach to Competition
Most of the time, when a company is trying to increase its competitive edge, it often looks at the price point.
Many companies use the lower prices strategy to stay ahead of their competition.
However, differentiation gives companies the opportunity to outshine their competitors without necessarily lowering their prices.
For instance, a cookie company can make its products have a distinct and richer taste.
Even if their competitors offer their products at a lower price, they will not taste the same way the other company’s products do.
The rich taste of the other company’s cookies would make the customers not mind paying more for it.
Another major benefit of this business strategy is it can help a business emphasize its product’s unique features.
All they have to do is evaluate their products and compile the features their products and their competitor’s products lack.
They can then communicate this to their customers using effective marketing strategies.
By doing so, the company can help the customers see the uniqueness of its products and make them understand the benefits they stand to enjoy from these unique qualities.
Helps Build Customer Loyalty
Differentiation in business can also help build customer loyalty.
When you offer superior quality and value than your competitors to your consumers, they will always prefer your products or services to others.
Even if your price is higher than that of your competitors, as far as your customers know they’d be getting better value from your product or service, they would not mind patronizing your business.
All you have to do to preserve this loyalty is to maintain the value that initially set you apart from your competitors.
If you fail to maintain the value, your customers will likely lose trust in your brand and look for a better alternative.
Can Help Increase your Profit Margin – What is Differentiation in Business
Another good thing about differentiation is that it can help you get a bigger profit margin for your product and or service.
Remember that you’d be giving your customers more value than your competitors.
Because your product or service is better and unique from what is generally in the market, you can increase the price of your product or service.
If you offer a high-quality product or service, people will not mind patronizing your business.
Reduce the Competition – What is Differentiation in Business
One of the most important advantages of this business strategy is that it helps you stay ahead of your competition.
Differentiation can give you a significant competitive edge that may make you feel like you have no competition.
When done effectively, this strategy can make your customers oblivious to other products and services that are similar to yours.
They would start to feel like there’s no alternative to your product in the market.
It starts with them not wanting to replace your service or product with an alternative because of the value you offer.
And with time, they would become so loyal to your brand that they may feel like no other brand can offer them what it offers.
Tips on Creating Differentiation Strategies – What is Differentiation in Business
After reading the above section, you may want to try this strategy in your business.
However, this isn’t something that you should rush into.
Before you apply any differentiation strategy in your business, you must first evaluate your needs, situation, and market.
There are also other steps that you have to take to make the process successful.
If you rush into it without being cautious, you can end up causing trouble for your business instead of helping it.
Thankfully, this article is here to help you every step of the way.
The following are the steps to take when creating any differentiation strategy.
Analyze Your Business Needs and Current Situation
Before you carry out any differentiation strategy, you need to know what you want to accomplish with it.
And the best way to do this is to analyze your business’s current position.
You need to figure out your company’s needs and where it stands currently, both financially and otherwise.
You also need to figure out the areas your business needs to improve.
So evaluate your business’s strengths and weaknesses.
Then, come up with a strategy for improvement.
Doing all these will help you determine the areas you need to focus the differentiation tactics on.
Carry Out Market Research – What is Differentiation in Business
Next, you need to conduct market research to determine how your business can add value to the marketplace.
Your company’s offers should align with your customer base’s needs and pain points for you to successfully carry out this strategy.
And the only way to align your offer with your customer’s needs is to evaluate those needs through market research.
There are many ways to research your customer base and get their opinion on your product or services.
But one of the best methods is a customer survey.
This would give you real-time feedback on your customers’ thoughts about your service or product.
It can also help you find out what they think would improve your product.
You can then use this data to develop the best idea to meet your customers’ needs.
Choose the Best Strategy
There are different differentiation strategies that businesses apply.
Typically, the strategy you’d employ would be based on what you want to achieve.
This is why you need to carry out the first two steps properly.
Once you are sure of your goals, you can streamline your idea and select the best differentiator (differentiation strategy) that would help you achieve the goals.
Price, service, product, image, distribution, and relationship are among the most common differentiators businesses tend to use.
Let’s look at these differentiators to help you understand them better and select the one that would best suit your goals.
Price – What is Differentiation in Business
This is the go-to differentiation strategy for a lot of businesses.
There are many ways to use your company’s price point to differentiate your business.
One of them is segmenting your customer base and then offering each segment a different service or product at different prices.
This means that your company can have different products/services that would appeal to different demographics; for instance, working class and students.
You can also offer a lower price than your competitors for a similar product or service.
Overall, price differentiation is a very effective strategy that most companies will find beneficial.
Distribution – What is Differentiation in Business
We are in the digital age, where many people do online shopping.
When you get an online order, you typically have to deliver the order to your customer.
This is why product distribution is a common process for most businesses today.
The good thing is that you can also use your distribution process to differentiate your business from your competitors.
How? Well, it is quite simple.
All you need to do is optimize your distribution process and make it better than your competitors.
For example, you can offer a wider range of coverage.
If your competitors only distribute products within your physical location, you can expand your reach throughout your state.
You can also make your distribution time faster than what your competitors are offering.
When you are known to offer the best distribution process among your competitors, your company can easily become the go-to for many customers within your niche and industry.
However, implementing this differentiation strategy can be quite tasking and time-consuming.
While this is a drawback, it also doubles as a major advantage.
Because the process of optimizing one’s distribution process is quite tasking, not a lot of companies will opt for it.
This is what makes this strategy quite more effective than other strategies.
Overall, companies that can offer better distribution channels will stand out.
Branding is about how your customers and the general public view your company.
It is the image the general public has about a company.
This is why many companies take their time to develop and maintain a positive image.
It is simple: people with a positive image of your business would be more inclined to patronize it.
So, it shouldn’t surprise you that companies have been using their image for a long time to stay ahead of their competition.
How do you do so for your company too?
All you need is a message and a strong marketing strategy that would imprint the idea you want your customers to have of your company in their minds.
Your brand should be able to stand for a peculiar thing in your customers’ minds.
You can build an ethical or eco-friendly brand, a brand concerned with social justice, and so on.
What you can achieve with proper branding is endless.
You can learn more about a brand image here.
This differentiation strategy helps a company place itself ahead of the competition by how it relates to its customers.
Relationship as a differentiation strategy depends heavily on customer relationship and care.
You can implement this strategy by offering the best customer relationship within your niche.
You can do this by creating a brand that customers can trust and rely on at all times.
The key factors to consider when implementing this strategy are credibility, reliability, and responsiveness.
When you provide the best customer service, your customers will learn to trust you, which will build customer loyalty.
Product differentiation is among the most common form of differentiation.
Perhaps, the reason why it is so common is because of how tangible it is.
Many other differentiators we’ve discussed so far are intangible, with some being only perceived differences.
But product differentiators are both physical and perceived.
Differentiating your company using your products is all about having unique characteristics and features than similar products available in the market.
You can differentiate your product with its features, looks (aesthetics), performance, etc.
However, this differentiator has a downside.
When you have a unique product in the market, you will attract the attention of consumers and your competitors.
And with time, they would be able to replicate the uniqueness that your product offers.
Yet, this does not mean you won’t benefit from this differentiator.
As the innovator of the unique market, you’d always have the edge over those that simply replicated your product.
Develop a Brand Identity – What is Differentiation in Business
Once you have decided on the differentiator of your choice, you now have to implement it.
You also have to work on your brand image at this point.
Your image has to represent what sets you apart from your competitors.
If you already have a brand, you may have to rebrand and develop an image that aligns with your new company objectives.
You should be creative and come up with an image that will attract the attention of your customers and prospects.
Tell Your Customers Your Story – What is Differentiation in Business
Finally, you want to tell your customers your business story.
This is all part of branding and setting your business apart from the competition.
Your story should be unique to your brand and capture your business’s uniqueness.
Think of the vision, mission, values, and goals of your company and use them to create a unique and compelling story that will appeal to your target audience.
Tell this story on your website bio, social media platforms, and other marketing materials.
Marketing is a very important tool for a successful differentiation strategy, so ensure you use the best marketing ideas to get your story out there.
Conclusion on What is Differentiation in Business
Differentiation is about setting one’s business apart from others within the same industry or niche.
It is not an easy strategy to implement, but it has advantages.
So, if you want to use any differentiation strategy in your business, you should know that it may not be the easiest process.
But when you succeed at it, it will be worth all the effort you have put into it.