Differentiation Stategy

Michael Porter proposed three Generic Strategies; one of the most important is the differentiation strategy, a strategy that companies should use in order to become successful. By saying differentiation strategy we mean the process that a company should follow in order to become unique at something and valuable to buyers (1). Companies that successfully implement a differentiation strategy are able to charge more than the other companies because customers are willing to pay more the extra value they perceive (4). One more thing that you need in order to have a successful differentiation is to have a well informed supplier, who knows the recourses and the capabilities through which it can create uniqueness, and a customer who believes that the product or the service you provide is the one that will satisfy them. Differentiation is one of the two types of competitive advantage a firm may possess. It is also an activity specific to particular functions such as design and marketing; it infuses all activities within the organization and is built into the identity and culture of a company (3). Differentiation leads to superior performance if the price premium achieved exceeds any added cost of being unique. As we continue the project we will see the steps of Differentiation, the benefits of it and finally the point when differentiation becomes negative for a company.

Differentiation strategy can be described in three steps. These three steps are equally useful and important. They describe the needs of the costumers and the knowledge that the company should have in order to achieve its target.

The first step refers to “who the buyer is?” and “what are his criteria?” For defining the buyers and the criteria that they use in order to purchase the product or the service that a company provides differentiation strategy uses multidimensional scaling, conjoint analysis, and hedonic price analysis(3). These three techniques give to the companies the information that...