Question

Differentiation strategy attempts to get customers to pay more for your product.

How do we achieve that? When this strategy works best? (customer needs, ways to differentiate, competition, etc.) What are some caveats you may think of when pursuing differentiation strategy?

Answer 1

We get the customers to pay more for a product by changing their perceptions about the product. What this means is the fact that most companies following differentiation follow an almost clan-like approach where the individual is not just buying a product or a service, it is essentially like they are becoming a part of the family. A family that has high standards of care and loyalty towards each other. A company that can achieve this emotion, evokes the feelings of a strong brand value in their customers that eventually turns to brand loyalty in the future. Most brands can get their customers to pay more because of the relationship and the engagement they hold with them. Not only does a brand have the best quality products(might not always be the case, but the level of care that goes into quality management would still be high), but also the best service out there in their market. We will never have a brand that follows differentiation that has bad service. These two values go hand in hand and have always been as such. The relationship between the combined product + service is directly proportional to the individual customer’s affinity to pay more for the product. The strategy is, therefore, best utilized by a company that either currently holds a good brand reputation in the market, has a history of consistently putting out great products(low cost or otherwise), or one that shows holds an innovative idea or design and has the caliber to match it with similarly exceptional service.

Differentiation is not about how much money a company is willing to spend on marketing or building customer relations, rather, is about how well a brand can present itself in the market, how it touches the people it's willing to convert, how well its customers feel after buying the product and being constantly engaged by the company, and, how well it can consistently do the same thing.

Consider BMW, yes, the brand value is high, yes, the product it has in the market is similar to the offering by companies such as Mercedes, but moth BMW and Mercedes can create differentiation in the market even with the same caliber of products is a testament to how well historical performance and caring for customer’s perceptions and a reputable service model continually puts these companies at the forefront.

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