Practically, all sellers’ offerings are differentiated from those of their competition. Differentiation may be based on certain characteristics of the product itself. It may also exist concerning the conditions surrounding its sale. A company’s product may also be differentiated by the images of its personnel and the type of distribution channel it uses. Any differentiation by a firm gives it a partial monopoly.
Differentiation in Marketing
Concept of Differentiation
A firm may face considerable competition in the marketplace with a whole market approach. A large market nearly always attracts competitors.
To operate effectively, the marketing executive will commonly use a differentiation strategy – making consumers believe the firm’s offer is different (i.e., better) than those of the competitors.
A general class of product is differentiated if any significant basis exists for distinguishing the goods (or services) of one seller from those of another.
Such a basis may be real or fancied, so long as it is of any importance whatever to buyers, and leads to a preference for one variety of a product over another.
Philip Kotler has defined differentiation as ” the act of designing a set of meaningful differences to distinguish the company’s offering from competitors’ offerings.”
Because the differences are often more imaginary than real, the strategy involves promoting a distinction in quality, value, or some other factor.
Differentiation, then, maybe based upon certain characteristics of the product itself, such as exclusive patented features; trade names; peculiarities of the package or container, if any; or singularly in quality, design, color, or style. It may also exist with respect to the conditions surrounding its sale.
In retail trade, to take only one instance, these conditions include such factors as the convenience of the seller’s or channel members’ locations, the general tone and character of his establishment, his way of doing business, his reputation for fair dealing, courtesy, efficiency, and all personal links which attach his customers either to himself or to those employed by him.
As these and other intangible factors vary from seller to seller, the offer in each case is different. Buyers take them into account, more or less, and maybe regarded as purchasing them along with the commodity itself.
When these two aspects of differentiation are held in mind, it is evident that virtually all product offerings are differentiated, at least slightly, and that over a wide range of economic activity, differentiation is of considerable importance.
There is more to the differentiation concept than the differences in quality, design, patents, trade names, and other features that often distinguish one similar product from another.
Such differences are planned by manufacturers and have their source in the production function even though they are planned to establish market superiority.
Differentiation is often used to build superiority in the market. Still, all firms recognize the differences that they can exploit that have their sources in consumers’ tastes and preferences.
In other words, what we know about the economic and non-economic aspects of buyer behavior allows a firm to strengthen its market advantage by developing real or fictional distinctions about its market offer. If such differentiation exists, even though it be slight, buyers will be paired with sellers, not by chance and at random, but according to their preferences.
Products, services, image, status connotations, quality, distribution channels used, and any economic or non-economic factor are all illustrations of the firm’s attempt to create and foster the concept of differentiation.
Differentiation Opportunities According to the Type of Industry
By this time, you are aware of the concept of differentiation. Opportunities for differentiation vary according to the type of industry. There are four types of industries identified by the Boston Consulting Group (BCG). These types are based on the industry’s sizes and the number of competitive advantages available to them.
The figure on the next page shows the BCG competitive advantage matrix. According to the matrix, there are four industries based on the size and differential advantages available to the industries.
They are the volume industry, the stalemated industry, the fragmented industry, and the specialized industry. Let us now have some idea about them:
Volume Industry
If an industry can gain only a few but large competitive advantages, it can be termed a volume industry. There could be several examples of such an industry. One such industry is the building material industry.
Such an industry can pursue a policy of establishing itself as a cost-leader or unique one in terms of service or quality. If it is successful in its policy, it skims the cream and can gain substantially. How much profit the company will make out of pursuing such policies depends on the market share captured by it or the firm’s size.
Stalemated Industry
If an industry enjoys only a few competitive advantages of small sizes, it can be called a stalemated industry. Like the volume industry, there are several examples of stalemated industries that can be cited. One such industry is the oil industry. An oil company can hardly differentiate its product from that of a competing company.
It is also challenging to reduce the costs of oil extraction. How it can differentiate its offer is recruiting highly capable salespeople, offering credit facilities, etc.
But, the company should remember that these measures will give only a little competitive advantage to it. In a stalemated industry, the market share of a particular firm is not related to the said firm’s profitability.
Fragmented Industry
If a particular industry enjoys many competitive advantages of small sizes, it is called the fragmented industry. Examples of the fragmented industries are quite large. A fast-food shop can be cited as one of the examples. The fast-food shop can differentiate its offer in quite a several ways.
Such differentiation cannot yield a proportionate revenue since a market share cannot be expanded extensively. In a fragmented industry, profitability is unrelated to the size of the firm in question. It is possible for firms of any size either to make a profit or to incur a loss.
The Specialized Industry
If an industry enjoys quite many differentiation advantages, it can be called a specialized industry. One important requirement for an industry to be considered a specialized industry is that each of the differentiation opportunities must be large enough to yield a healthy profit.
Any firm making specialized items or marketing specialty goods aimed at the selected market segment(s) is a part of the specialized industry. The profitability in such an industry is not related to the size of a firm. Both small and large companies can be profitable in a specialized industry.
Companies differ in their potential maneuverability along five dimensions, as identified by Milind Lele. The dimensions are the target market, product, channels, price, and promotion.
This of the above dimensions, a company will move depends on its position in the industry and the industry’s structure. To decide on the dimension, a company initially estimates the return for each potential maneuver and finally selects one that promises the highest return.
5 Differentiating Variables – Differentiating Variables Available to Firms
You are already aware of four industries based on the number of available competitive advantages and their size. You also know that there are five dimensions of a company’s potential maneuverability. You should now know, precisely, how a company can differentiate its offer from those of its competitors’ offers.
The dimensions along which a company can differentiate its offer our products, services, personnel, channel, and image.
5 Differentiating Variables are;
- Product Differentiation.
- Services Differentiation.
- Personnel Differentiation.
- Channel Differentiation.
- Image Differentiation.
Product Differentiation
The modular approach to production is particularly in keeping with an understanding of product differentiation costs because it refers to manufacturing systems in which the product is divided into modules (parts) and assembled by interfaces that are common to the modules that make up the end product.
Product differentiate based on;
- features,
- performance,
- conformance,
- durability,
- reliability,
- reparability,
- style, and
- design.
Service Differentiation
A company side by side the product differentiation can also rely on service differentiation.
By adding more value-adding services and improving its quality, a company can differentiate its offer based on services. There are situations when companies have little scope of differentiating the tangible product. In such situations, a company can pursue the policy of service differentiation.
Ordering ease, delivery, installation, customer training, customer consulting, maintenance, and repair are important to service differentiation variables.
Service Differentiation Variables
Ordering Ease
It relates to the convenience or comfort that customers enjoy while ordering the product. Some companies offer customers facilities to order products sitting at home with the punch of a computer button.
Other companies either send their salespeople regularly to customers’ door-steps to collect orders or phone them to receive orders.
Delivery
The process of delivery is known as distribution, and it involves both the selection of suitable channels for distribution and the physical movement of items associated with the marketing of the product.
Delivery is an important means of differentiation of the company’s service. Customers prefer prompt and timely delivery, and a company can build its image as a fast and timely deliverer of products.
Installation
The term installation is used to fix the product so that it becomes operational—certain types of products are required to be installed or put in place by expert personnel. If not, they may malfunction. Customers of such products expect that it be installed by the seller.
A lift or a generator, for example, should be installed and make operational by a concerned technical person. What type of installation facilities are offered by the sellers on such items determine their image in the market.
Customer Training
Many products have become so advanced that buyers need assistance in learning how to use them properly. This service will become more important as home computers and other high-technology products begin to penetrate consumer markets significantly.
Companies may have their training centers or can maintain an efficient and trained group of personnel responsible for training buyers or their representatives on product use/operation. IBM, for example, has established consumer service telephone lines to answer customer questions.
Customer Consulting
Companies may supply different relevant data, information or offer advisory services on different aspects to customers. This is referred to as customer consulting.
It may be offered free of cost or for a price. For example, a company may advise its customers on setting up a distribution system either free or against a fee. Offering different relevant and remotely relevant services free of cost or at a reasonable price may help the company differentiate its offer.
Maintenance and Repair
Despite the advances in technology, no product is designed to last forever.
Marketing executives have begun to recognize the importance of having a good repair network since poor maintenance has been a continuing source of consumer dissatisfaction and complaint. Increasingly intense competition has made this area of service improvement more attractive.
Companies like Samsung and Apple have their repair stations to provide customers with the repair service.
Other Services
There could be many other services that a company may add to its offer as differentiable variables. Examples could be credit program as “BUY NOW, PAY LATER,” express and implied warranties, and so on. These can give a company a competitive advantage and ensure its long-term existence in the market.
Differentiation in Terms of Personnel
Creating a particular image or personality for a company or its products is a particularly astute form of marketing.
It can better be used by companies in which physical design can play little part. Such differentiation can give a company a competitive edge. In this case, the marketer aims to create an ‘aura’ for the product.
It distinguishes the product from its competitors in indefinable ways. In the airline industry, for example, before deregulation, when differentiation under IATA regulations was virtually excluded, certain airlines were able to develop distinct ‘personalities’.
Thus, an airline may develop an image of a friendly, easy-going airline distinctive from other airlines operating on the same routes. Certain hotels are renowned for their atmosphere, giving them a unique quality that their competitors cannot capture.
While creating a personality, an organization should consider six characteristics to be possessed by their staff. The characteristics are;
- competence,
- courtesy,
- credibility,
- reliability,
- responsiveness, and
- communication.
Channel Differentiation
A distribution channel is another variable that a company may use to differentiate its offer. A company can distribute its products either directly or through the use of intermediaries.
While deciding on this, it should consider customer characteristics, company characteristics, product characteristics, and environmental characteristics.
In channel design decision, the above factors should be combined so that customers consider it different and attractive. Successful implementation of such a decision may again give the company a strong competitive advantage.
Image Differentiation
The concept of the image has become important in marketing strategy. The image is the final impression of a product or company that a customer receives through physical and psychological experiences. There are six basic kinds of images – corporate, product, brand, wholesaler, retailer, and the customer’s self-image – all of which are interÂdependant.
The corporate image transcends all other types of images, for a company with a poor image, will have difficulty in gaining optimal market penetration for its product.
The corporate image depends upon selecting the advertising media and the quality of the public relations program. The customer must feel that the company’s major objective is to satisfy customer demand.
The product image depends upon the image-building operation of several companies making the same product line.
A product may be considered for young people or the elderly, as connoting high or low social status, as feminine or masculine. Associations helping to build product image for industry should communicate that the product has good quality and is dependable.
Complementing the corporate and product images is the brand image. Once a product line has been accepted by the public, each company making that product tries to have its own brand accepted.
Brand acceptance depends upon packaging, labeling, brand name, identification, advertising, and a company’s promotional efforts. The company’s corporate image can help or hurt brand acceptance, and hearsay evidence of neighbors or friends may modify a brand’s acceptance by customers.
Even if the other images in the several steps of the distribution channel are acceptable, a sales barrier may arise if the wholesaler’s image is poor. If a product is carried by a retailer whose image is poor, the product’s sales to customers will not reach an optimal level.
The customer’s self-image is a very important factor in marketing. The self-image is the role the customer believes he is portraying or how he believes others regard him. Self-image is composed of basic physiological, sociological, and psychological elements.
No matter how good the corporate, product, and outlet images may be, if they do not conform to individuals’ self-image in a market segment, acceptance of a brand will be negatively affected.
While deciding to exploit image as a differentiation variable, a company should be careful about how it is communicated to the customers, the media used to communicate, the symbols used, the nature and characteristics of customers, products, and all other image components. The successful operation here can place a company in a distinctive position.
In this post, we have covered differentiation in marketing and it’s variables. Please read through our Marketing Management comprehensive guidelines for more studies.