Differentiation as a Competitive Strategy (Essay Sample)

Differentiation as a Competitive Strategy
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Introduction
The porter's generic strategy is a critical framework for understanding the strategic management issues of a particular firm since it aids in describing the ways in which a business gets to acquire a competitive advantage in the market. According to Porter (1980), there exist two types of competitive advantage which various firms can decide to pursue. The first type of competitive advantage includes lowering costs whereas the second is differentiation. The two types of competitive advantage lead to the development of the four generic strategies which firms to choose from as they pursue to achieve competitive advantage over others. Differentiation involves developing a service or a commodity in a way that it presents unique characteristics which other products from other firms do not have and hence the service or the product is highly valued by customers since they take it to be better than others (Dirisu et al., 2013). However, the extra attributes added in the product may lead to the firm introducing a premium price on the product or the service, but since it fulfills the needs of the customers, they will still continue buying it despite the higher price. The purpose of this paper is to discuss how differentiation can be a competitive strategy for any organization by referencing to porter’s generic strategies.
Differentiation as a Competitive Strategy
Through a firm employing differentiation as its business strategy for competition, it will, in turn, get a competitive advantage over the rivals which will make the company continue thriving in the competitive environment. Firstly, differentiation reduces the threats that arise due to the introduction of substitute goods in the market (Porter, 1985). As discussed above, differentiation involves the introduction of a particular attribute in a product which is much desired by the customers who will continue purchasing the product so that they can enjoy that feature. As consumers continue buying that particular product in pursuit of the attribute, they get addicted to those characteristics within the product hence would not think of buying other products since they lack these features. Therefore, even if substitutes are introduced and sold even at a lower price, the customers will still go for the differentiated product and this, in turn, leads to the firm gaining a competitive advantage over others. This clearly shows that indeed differentiation can be a competitive strategy for any company trying to outdo others.
Secondly, differentiation can be a competitive strategy for an organization since it enables the enterprise to build loyalty among its customers which in the end discourage entry of new businesses into that particular sector as Porter (1980) outlines. Customers buy products or services with the mindset that it will satisfy their expectations and be useful for them. Differentiation enables a firm to manufacture a product which aims at meeting the needs of the clients since before carrying out differentiation, a company initially carries out research so as to identify what consumers look for in a particular product (Dirisu et al., 2013). The firm, therefore, produces a commodity which satisfies the needs of the customers and this builds loyalty among consumers in that they will only purchase the product from that particular firm only. Therefore, new enterprises which might be aiming at venturing into that same sector might find it hard getting customers an aspect which might lead them to close down their businesses or even not considering venturing into that particular sector with the fear of making losses. This leads to the firm selling the differentiated product to exist like a monopoly hence experience less competition as there are few rivals. It is, therefore, true that differentiation can be a competitive strategy for any firm as Majeed (2015) outlines.
Thirdly, differentiation allows the organization to engage in non-price competition. In particular, applying strategies aimed at differentiating products as well as services places the firm which enacts these strategies in a platform whereby price is not the only aspect that forms competition with others (Zekiri and Nedelea, 2011). For instance, a coffee shop business can differentiate its coffee from the one that is sold by the rivals by having an improved quality as well as taste. By doing so, the company will not compete with others regarding price since even if the firm sells its products at a higher price, the customers will still prefer it since they will argue that they are paying more cash for the improved quality as well as taste (Jarour, 2013). It is worthwhile to note that a lot of individuals purchase products by considering their quality and level of satisfaction they offer and not price, and hence the firm will even attract more customers despite the high price it charges. This could lead to the enterprise even forcing the rivals out of business due to the losses they could be making due to lack of customers, and this will result in the firm gaining a competitive advantage over others.
Fourthly, differentiation can be a competitive strategy for a business enterprise since it enables the company to identify the perception of the value of a product or a service that is embedded in customers. Differentiation is done after carrying out research which aims at identifying the expectations that customers have about a particular product. Many business enterprises perform poorly because they just improve on some aspects of the goods or services they manufacture without first researching what the customers would be looking for in those commodities. It is critical that a firm carries out research so that it becomes aware of the expectations of the consumer so that it will differentiate a product in that line which will result in it gaining a competitive advantage over others. Regarding customer perception about value, differentiation plays two key roles as Dirisu et al. (2013) outline. First, it helps the firm to notice the requirements of the buyers in a particular product which enable the company to enact characteristics which offer those conditions within the commodity. Secondly, differentiation allows the firm to entice first-time consumers of their products by modifying their perception about the commodity by making them believe that the product will satisfy their expectations. Through this two ways, the said firms gain a competitive advantage which indeed justifies the argument that differentiation can be a competitive strategy for any organization.
Fifthly, differentiation enables the manufacture of a broad variety of products hence it can be used as a competitive strategy by any business organization. The aspect of employing differentiation strategies in the world of business enable the firm which undertakes this strategy to manufacture a variety of different commodities which are meant to satisfy the various kinds of preferences and tastes that consumers have on one product. Therefore, through using this strategy, a business organization is in a position to offer diverse products in the different market segments which will automatically increase the number of sales it makes since it is capable of reaching out to many customers with different tastes and preferences (Dess and Davis, 1984). It is an undoubted fact that the wider the range of products that a firm produces, the more competitive it is in the market which leads to the company dominating over the rivals owing to its large number of customers. Therefore, this strategy involving differentiation can indeed be a competitive strategy which can be employed by any business organization aiming to increase its competitiveness in the market.
Sixthly, differentiation promotes the aspect of creativity within the organization hence it can be utilized by a business organization as a competitive strategy. It is a fact that the world of business keeps becoming more and more competitive as new firms continue venturing into business related activities hence increasing competition in the already competitive arena. According to Johnson et al. (2013), the only way that a firm can stay relevant in business is only by inventing new products which are not being offered by other companies which will attract customers. The virtue of differentiation serves this purpose since it enables a business enterprise to develop products as well as services with unique attributes which result in customer satisfaction. Additionally, differentiation allows a firm to invent new ideas which are to be used in improving the products and services which are already in existence which results in increasing the efficiency as well as the attractiveness that a particular product or service has. Therefore, the creativity that is used during differentiation enables the firm to stay competitive by always outperforming other businesses and surpassing the customer expectations.
Moreover, differentiation can be employed as a competitive strategy for any business organization since it enables the firm to pass down the extra costs that could be charged by suppliers to the customers which reduce the level of costs that the company incurs through suppliers. According to Jarour (2013), the customers will still buy the differentiated product even if it is highly priced since they believe that it will meet their expectations. The premium price that is charged for the differentiated product or service does not always include the extra costs that are incurred while manufacturing the product as Amoako and Acquaah (2008) explain. The organization which sells the differentiated commodity or service can make exploit the presence of the premium price such that it includes the costs that are incurred through suppliers. For a firm to continue performing well in the bus...