One risk of the differentiation strategy is that: c. the firm may offer differentiated features that exceed the customers’ needs. A first risk to differentiation strategy is the possibility of other firms entering the market and lowering prices to keep from losing customers. Since the market leader has the highest brand recognition in the market, competitors will choose to imitate and try to improve the overall value-added to the customer. As the number of products offered increases in the market, the product differentiation strategy becomes more profitable. Small firms are always under pressure to allocate marketing resources efficiently among their product offerings. This can occur as buyers become more sophisticated; 3. The organization must establish policies, procedures, and goals of continuous improvement. If it loses its share after a while, then it will retrieve its resources and those of competitors the only cost of which will be the initial minimum loss of resources. 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[CDATA[ One risk is that customers will sacrifice some of the features, services, or image possessed by a unique service because it costs too much. Principal among these risks is that a firm becomes 'stuck in the middle'. The entry of such firms, then, restricts the market leader’s profits to a competitive level. The organization must continually measure and analyze its performance. The main objective of implementing a differentiation strategy is to increase competitive advantage. Johnson & Johnson’s Vistakon Inc. demonstrated the value of taking risks when it took a chance on unproven optical technology. When company executives were led to an inexpensive method of manufacturing contact lenses they seized the opportunity. Consumers' choices are often informed by word of mouth and other information sources. The cost differential between low-cost competitors and the differentiated firm becomes too great for differentiation to hold brand loyalty. Enter your account data and we will send you a link to reset your password. The deterministic outcome of the Cournot game is a high level of output since competitors take into account not only their own production costs but also the market leader’s costs in determining their own production levels. (function(){for(var g="function"==typeof Object.defineProperties?Object.defineProperty:function(b,c,a){if(a.get||a.set)throw new TypeError("ES3 does not support getters and setters. The greater the growth of the market, the larger the degrees of implication of the strategy. The motivation is that by attracting more customers, larger profits are to be obtained. The likely scenario is that there will be the pre-existing product dimensions like price, service, and features which define the strategic policy In order to improve the brand reputation and differentiation product offer, the cost of production, the size of the market, and the number of buyers available must be determined. Even when it has a solid basis for differentiation, a brand's target audience may be too small for profitability. The Dimond-Pierce effect is a result of efficient use of factors in production. How Apple Uses Differentiation Strategy to Gain Competitiveness. The loser in this competitive game are the firms which specialize in one type of product as these firms lose market share. The Dimond effect is a risky strategy with uncertain results due to the high competitive environment. For example, buyers for a retail drugstore chain would probably reject a deodorant that differs from other brands only because its package has an unusual shape. Because of this, your marketing, sales and service costs are often higher as well. The company is well known for its innovative products such as Macintosh line computers, the iPod. For a small business, skillful differentiation can create a market niche without matching the expenditures of bigger competitors. ("naturalWidth"in a&&"naturalHeight"in a))return{};for(var d=0;a=c[d];++d){var e=a.getAttribute("data-pagespeed-url-hash");e&&(! "),d=t;a[0]in d||!d.execScript||d.execScript("var "+a[0]);for(var e;a.length&&(e=a.shift());)a.length||void 0===c?d[e]?d=d[e]:d=d[e]={}:d[e]=c};function v(b){var c=b.length;if(0. For example, marketers might learn that while large numbers of people like the idea of fat-free pies and cakes, only a handful actually choose these options when offered traditional baked goods. The greater the size of the market, the larger the degrees of implication of the strategy. They can also study the size and purchase habits of the target market proposed for a differentiated product. Many firms that may be interested in entering the segment will be able to do so when the goods offered by the firms are forced to become differentiated. A network of selling and referral links allows the Corday strategy to become a network of support with fragmented pricing strategies. The Dimond effect is a risky strategy. … Corday: Anti-Differentiation Strategy The Corday strategy is aimed at the competitors through the courting of the non-buyers. Many consumers perceive the product as equivalent to alternative products offered in the marketplace at a lower price. The likely scenario is that there will be the pre-existing product dimensions like price, service, and features which define the strategic policy. This strategy is aimed at the weaker competitors, hence can be viewed as a differentiated strategy integrated with a small-world network. Additionally, various firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments. For example, the inputs used for the production of each batch may be altered by the firm. A distinctive capabilityis an ability to do something no other competitor can … A network of selling and referral links allows the Corday strategy to become a network of support with fragmented pricing strategies. The big risk when using a differentiation strategy is that customers will not be willing to pay extra to obtain the unique features that a firm is trying to build its strategy around. Product leaders are not averse to risk. Here you'll find all collections you've created before. Dimond-Pierce Effect: For The Price Of One, Differentiation Strategy: Death Of The Leader. This situation is similar to the gris-gris effect of offering a discount toothpaste in a larger volume. Firms can improve their profits by moving to an improved position which does not necessarily mean that it will be to the furthermost right. In my opinion, the main risks of a differentiation strategy are: 1. The process works well when it is based on tangible, meaningful differences, like the quality of a food's ingredients or the effectiveness of a drug. Executive summary. Imagine how disappointed customers would be if Amazon promised two-day delivery, but could not live up to these expectations. The Dimond effect is a result of the product fad to which the economy is connected. The company must use only one out of three competitive strategies. Basically, it is concerned with satisfaction and utility. Since the market leader has the highest brand recognition in the market, competitors will choose to imitate and try to improve the overall value-added to the customer. Specifically, firms may use surveys, focus groups and other data-gathering tools to gauge the reaction of likely buyers to a marketing promise or focus, reports Hubspot. In this case, the firm’s products are of entirely different types of quality. b. Your Differentiation Strategy is at Risk It sometimes seems that many businesses have more measurements, controls, and processes than NASA. Broad differentiation is a strategy that is applied across an industry, appealing to a broad range of shoppers. The greatest dangers, however, may be the market leader’s need to manage its evolving portfolio of market segments. Risks: Porter assets that there are risks to the differentiation strategy. At the moment, the business environment is characterized by a high rate of dynamism as a result of technological advancement, coupled with a high rate of globalization. In many market categories, warehouse and shelf space are limited and distributors are wary of stocking too many brands. Nonetheless, the effect on the industry is that companies will be forced to discontinue their production at the set prices. For example, the inputs used for the production of each batch may be altered by the firm. Additionally, various firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments. See slide 26. Customers may find the price differential between the low-cost product and the differentiated product too large. “The cost differential between low-cost competitors and the differentiated firm becomes too great for differentiation to hold brand loyalty. This is accomplished by offering a variety of types of product. Although the Cournot competition in the market place is not a game in the mathematical sense of the word, it does produce the characteristics of a dynamic game. Buyers thus sacrifice some of the features, services, or image possessed by the differentiated firm for large cost savings; A differentiation strategy can only be successful by having a larger share of the existing market then competitors. Only by examining the long-term consequences of the strategy will tell if it is the correct one. It is possible that this gives rise to a game called Anti-Differentiation Game in which deviations from the pure Nash equilibrium are observed. ":"&")+"url="+encodeURIComponent(b)),f.setRequestHeader("Content-Type","application/x-www-form-urlencoded"),f.send(a))}}}function B(){var b={},c;c=document.getElementsByTagName("IMG");if(!c.length)return{};var a=c[0];if(! Amazon in particular has invested millions of dollars in computerized and robotic systems that made the product pick-up faster, which speeds up the entire shipping process. To use social login you have to agree with the storage and handling of your data by this website. The organization must establish a base inspection for quality control. The risks associated with a differentiation strategy include imitation by competitors and changes in customer tastes. This creates more pressure to stimulate customer demand and to maintain a reasonable sales price to drive revenue and profit. 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