Differentiation is the process of creating a different and distinguished offering by a company through a number of available tools, which adds meaningful value to the offering.

Criteria for Differentiation

All products can be differentiated to some extent, but not all brand differences are meaningful or worthwhile for which it should satisfy one or more of the following criteria:

Tools for Differentiation

The number of differentiation opportunities varies with the type of industry. The Boston Consulting Group (BCG) has distinguished four types of industries based on the number of available competitive advantages and their size.
Volume Industry: When companies can gain only a few but a large competitive advantage. Profitability is correlated with company size and market share, e.g., construction equipment industry.
Stalemated Industry: When there are few potential competitive advantages and each is small. Profitability is unrelated to company market share, e.g., the steel industry.
Fragmented Industry: Where there are many differentiating opportunities but each opportunity gives the very little competitive advantage, for example, a restaurant.
Specialized Industry: Where there are many high-payoff differentiating opportunities. For example, specialized machine tools.
There are several variables through which a company can differentiate its market offerings such as:
Product Differentiation: A product can be differentiated in many ways such as by changing the form and by varying the features or by setting a superior performance quality or by having a unique and superior design or by having a high degree of reliability or higher durability or simply by having a unique style.
Service Differentiation: When the physical product cannot be easily differentiated, the key to competitive success may lie in adding valued services and improving their quality. A company does so by providing Miscellaneous Services, offering an improved product warranty or maintenance contract; it can also offer rewards, provide customer training, etc.
Personnel Differentiation: Companies can gain a strong competitive advantage through having better-trained people. Better trained personnel exhibit six characteristics:
Knowledge & Competence,
Courtesy towards Customer,
Individual Credibility,
Responsiveness towards Customers, and
Communication Skills
Image Differentiation: Identity and image need to be distinguished. Identity comprises the ways that a company aims to identify or position itself or its products. The image is the way the public perceives the company or its product.


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