Define differentiation Evaluate a businesss differentiation

Define differentiation. Evaluate a business\'s differentiation opportunities using skills, resources and organizational requirements. What potential risks managers must take into account as they evaluate the differentiation – based advantages?

Solution

Differentiation refers to the strategy used by the firms to differentiate its business from that of the competitors. Differentiation can be in terms of product features, services, or business operations that can create added value for the customers. Companies use this strategy to develop a sustainable competitive advantage.

A business firm can achieve several opportunities with the help of differentiation using skills, resources and organizational requirements. Firms using differentiation strategy can charge premium price from its customers. Besides, it helps the firm to outperform its competitors and provides a competitive edge. Customers develop brand loyalty and remain insensitive to price changes.

Despite of the opportunities, there are some risks associated with the strategy as well. Competing firms of an organization adopting differentiation strategy might imitate the product making the competitive edge meaningless. There would be significant difference in the price of products/services offered by the organization adopting this strategy and others. In case of huge cost difference, customers might switch to the other companies. Rapid change in technology as well as need and preference of customers can also hamper the competitive edge achieved by differentiation strategy.