Strategic Management - Niche Differentiation

A differentiated business strategy is one of the two basic types of competitive strategies that companies use as a strategy. In essence, companies can take advantage of one of the many possible ways to differentiate themselves from competitors to drive business.

Differentiation

Differentiation means making an organization or brand stand out by providing unique features, benefits, services or other elements of your solution. This strategy refers to identifying the most important criteria used by buyers in the market and then designing product, service or other offerings in the best possible way to meet those criteria.

Offering the finest-quality product, the best solution, an exclusive or modern feature or tool, or organic materials are examples of differentiation. Differentiation strategies are considered along with higher price points than low-cost providers as more money is needed to offer a better overall solution. Depending on the value-added elements before going for the low-cost options is key.

Differentiation Focus

Differentiation focus relies on one or a small number of target market segments. In some industries, different market segments demand different types of product or service. With a differentiation focus, your business focuses on one or two given segments with which the company’s strengths best align. This more-focused approach allows maximizing the efforts in marketing to the selected segments and lets the organization to invest the resources to convince the segments of your brand's superior benefits.

Low Cost Limitations

Usually, there is always more room for differentiated business strategies than for low-cost strategies. Ultimately, just one company emerges as the true low-cost provider in an industry. Being the second-lowest or third-lowest provider does not make the game change. In some industries, several companies compete to be low-cost providers, however, only one company wins out or limited profits are spread around. Thus, the companies that do not want to engage in a high-risk battle of cost leadership must opt for a differentiated approach.

Porter's Model

Michael Porter offers a mention of differentiation in his famous five forces of competition model by noting four basic competitive-advantage strategies. They include differentiation and differentiation focus, which are two similar but distinct differentiation strategies. Porter noted five competitive forces from rivals, new entrants, suppliers, buyers, and substitutes.