Question

Describe the risks of a differentiation strategy.

Answer 1

1) Missallocation of resource

Resources can be misallocated by brands that are poorly differentiated and unlikely to sustain customer loyalty. A brand's target audience may be too small that even if it has a great differentiating strategy, it can stiil fail.  In these situations, managers may need to reevaluate the product mix to make sure the firm gets a reasonable return on its overall marketing investment.

2) Consumer Dissapointent

At the point of purcahse, a consumer can be dissapointed if the product does not meet the standards that was shown in the advertisement or other promotional activities.  If products fail to deliver on the promises made to differentiate them, buyers may be disappointed and angry. This is a particularly significant risk for expensive products.

3) Distributor Resistance

In many market categories, warehouse and shelf space are limited and distributors are wary of stocking too many brands. They are likely to resist new products, especially from a small marketer, when the goods are differentiated based on barely perceptible or unimportant dimensions.