In every company, the management engages in three levels while planning. The levels include business-level strategy, corporate level strategy, and the functional level strategy. The functional strategy serves the general company strategy for efficient and effective implementation of corporate strategy. A business strategy guides the company in achieving a specific objective or goal (Peteraf, Gamble and Thompson Jr 2014, 3). It keeps the stakeholders in the company who are working towards its excellence informed, motivated. It monitors the improvements of the business over time and assists in the decision-making process on the steps to be taken for the success of the business. The functions of a business strategy are to increase the earning potential and success of the company, chooses the most profitable niche for a market to promote the business and helps a company to gain an advantage over its competitors (Peteraf, Gamble and Thompson Jr 2014, 5).
Porter's Generic Strategy
Porter's Generic Strategy is divided into three, cost leadership strategy, differentiated product, and services strategy and focus strategy. Cost leadership strategy passes most of its benefits to the consumers by offering them products and services at relatively low prices. Companies using cost leadership strategy aims at offering their consumers quality products and services at a lower cost than its rivals in the industry off (Tanwar 2013, 11). On the other hand, differentiated product and services strategy involves selling a unique product or services such that the consumers will be willing to pay more since the product or service is giving them so much more for their money. The companies that use the strategy aim at charging customers more than it costs the firm for the special features (Tanwar 2013, 12). Finally, focus strategy is a more of a hybrid for cost leadership and differentiated products and services strategies. It involves focusing on providing goods and services to a given market segment within a section of a product line and or to a definite geographic market (Tanwar 2013, 14). Therefore, a firm that uses focus strategy has the best strategy to serve a particular market better than its competitors do.
The fundamental advantage of organizations or associations that utilizing Porter's Generic Strategy could increase competitive advantage. Companies which apply cost leadership strategy are likely to enjoy a higher profit from selling their products and services (Teece 2010, 172). Decreasing the cost of production leads to the generation of higher profits even when the company sells at a standard price or the market price (Tanwar 2013, 14). Price wars allow companies to gain a competitive advantage over its rivals in the industry. On the other hand, customers in the contemporary world of business where they are empowered because of access to information are likely to seek for differentiated products (Tanwar 2013, 16). Besides, when a company employs differentiation strategy, it creates an additional barrier for companies wishing to venture into the industry in which it operates. Finally, focus strategy allows a company to benefit from the specialization that the organization provides through decreased investment in resources. Focus strategy is associated with customer loyalty which is good for a company (Tanwar 2013, 16). The following essay seeks to show that differentiation can be a competitive strategy for any organization.
Differentiation Strategy as A Competitive Strategy for Any Company
Differentiation is aimed at the broad market that entails development of a product or service that is unique from other products or services across the industry. Differentiation can be done on the design of company’s products, innovation, brand image, features or customer services (Teece 2010, 174). Differentiation is a suitable strategy for any company as it guarantees earnings above the standard returns as brand loyalty tend to lower the sensitivity of a customer to the price. In most cases, the costs associated with differentiation are passed on to the buyer by increasing the selling price. Similarly, customer loyalty acts as a barrier to new firms who wish to venture into an industry (Teece 2010, 175). Therefore, firms should develop their products and services in a certain way to gain competitive advantage.
Elements of differentiation
Differentiation has three elements which include pricing product as well as the organization. Pricing is a function of profit in which the selling price determines the amount of sales a company generates (Wang, Lin and Chu 2011, 102). It is a determining factor in support of the company and can fluctuate depending on the forces of demand and supply in the market. Besides, the selling price is an indicator of the value the customer attributes to a product in the sense that a customer will have questions regarding the quality of a product if the selling price is too low and when the price is too high the customers may be discouraged from buying the product. Therefore, companies that opt to differentiate the price can either offer a reasonably low price or establish superiority by offering their services at the reasonably high price (Wang, Lin and Chu 2011, 102). For instance, Apple Inc. has managed to maintain a high market share in the world despite the fact their products are expensive compared to other brands in information technology industry.
The other area in which a company can implement the strategy of differentiation is through the development of the product. Innovation is the perfect tool that enables a company to develop its products or services in a way that meets the needs of customers in order to gain a competitive advantage over its rivals in the industry (Baroto, Abdullah and Wan 2012, 123). Differentiating a product is associated with many costs such as research and development, production as well as marketing. All these expenses increase the cost of production of the product and call for a review of the selling price if the company wishes to transfer the extra costs to the consumers. However, the company may decide to sell the differentiated product at the same price as the undifferentiated ones hoping to set off the extra cost of production by the volume of sales they make considering that the customers respond positively and choose the new product as they shop.
The third form of differentiation is organization. It involves maximizing the power of brand or capitalizing on the strengths of the company such as delivery of quality customer services. Customers are very sensitive to the way they are treated by the service providers of a company (Gebauer, Gustafsson and Witell 2011, 1270). Besides, companies can take advantage of the location they are in to stand out from its rivals in the industry. For instance, a company that deals with stationaries and is located near a college is likely to sell more than one located in the city square.
Examples of Different Companies That Use Differentiation Strategy
The following section gives examples of companies in different industries that use differentiation strategy to show that the business strategy can be used by to gain a competitive advantage by any company over its rivals in the respective industries.
Virgin America Airlines
Virgin Airline is a company operating under the Virgin Group Ltd a multinational company based in the United Kingdom. It was established in 2004 but started operating in 2007, and Richard Branson is the managing director of the company. The company is in the air travel industry and has embraced technology to differentiate itself from other airlines in the country. Its business model is to charge less expensive fares, provide full-service flights and quality customer services. The company has adopted a twofold differentiation strategy of services and pricing (Homsombat, Lei and Fu 2014, 9). Virgin Airlines has managed to stand out from its cost-cutting airlines by reducing the costs per flight. Besides, the company has a bunch of customer services that make it one of the most preferred airline in the country. For instance, it has roomy cabins, full-service meals, touchscreen seatback entertainment as well as on-plane WIFI. The company also capitalizes on the Virgin brand in promoting its services. Besides, the multiple acquisitions and subsidiaries enable the company to operate in different parts of the world (Homsombat, Lei and Fu 2014, 10). Even after venturing into new markets where different regulations apply, Virgin Airlines has managed to maintain its model of competitive pricing and quality customer services. The sound strategy has enabled Virgin to be among the leaders in the global air travel market.
Wal-Mart Stores Inc is the leading retail store in the United States. It was established in 1962 by Sam Walton. Its headquarters are situated in Bentonville Arkansas. The company operated more than 11,000 stores across the world. It is a public traded company that trades and WMT in the New York Stock Exchange. It is a component of the Standard & Poor 500 as well as the Dow Jones Industrial Average. It has been listed as the world's leader in the retail industry since it has the largest revenue volume. Besides, it is the leading private employer in the world with more than 2.3 million employees. The company has a clear differentiation strategy in pricing which has been enabled by the company's transport, logistic and information systems (Ellickson and Grieco 2013, 6). Besides, the company purchases merchandises in large quantities thus enjoy economies of scale and reducing costs of sale. The company has an efficient inventory system ensure that goods are available for the consumers whenever they need it. The company focuses on groceries auto parts and clothing. No new competitor has been able to enter the market offering the different products Wal-Mart is offering and with such a low price (Ellickson and Grieco 2013, 8). In fact, some competitors such as Kmart and Sears have been forced to exit the market by closing down. Nevertheless, Wal-Mart has its greatest price competitors such as Target but has remained in the lead by managing to offer its consumers a variety of products at a low price.
Apple Computer, Inc. was officially incorporated in January 1977 to develop and sell personal computers. It was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne. In January 2007 was renamed to Apple Inc. as the company shifted its focus toward consumer electronics. Its stock trades on New York Stock Exchange as AAPL NASDAQ. Apple has grown to be the world’s largest information technology company. Its business model entails innovation and design. It has enabled the company to brand itself as the leader in the information technology industry. Apple uses a multifaceted differentiation strategy in which they are innovators, capitalize in its brand and seeks to offer excellent customer services. It has managed to beat companies such as Samsung who practice cost leadership strategy. Apple focuses on the main features that differentiate the products of the company from those of the rival companies (He 2012, 48). The fact that the company emphasizes on an elegant design which is combined with user friendliness as well as high-end branding allows it to differentiate itself from competitors, not in terms of price but rather, special features that are unique and beneficial to the customers. In other words, innovation and emphasis on excellence of the product design are the only way the company manages to maintain its position in the global market despite its relatively high selling prices (He 2012, 49).
Nike is a multinational company based in the United States. Phil Knight and Bill Bowell established the company in 1964. It has its headquarters in Beaverton, Oregon and is traded on the New York Stock Exchange as NKE. It is a component of the Standard & Poor 100 and 500. It is engaged in developing, designing, manufacturing as well as distributing athletic footwear and apparels. Their business model involves offering a high quality sporting product such that the customers will be willing to pay a high price for the products (Mahdi et al. 2015, 173). The differentiation strategy that the company uses focuses on product. The company offers high-quality products that meet the expectations of the consumers. It has managed to establish itself as the leader in offering athlete products. The company has invested in research and development as well as innovation to ensure that they provide their consumers in the athlete platform products of the highest quality. Nike transfers the extra costs associated with differentiating its products to the customer (Mahdi et al. 2015, 173). Therefore, consumers pay high prices for Nike products.
From the above analysis, differentiation strategy can be applied in any given company to gain competitive advantage. The company focuses on pricing, product, and organization to stand out or be unique from its rivals in the industry. Virgin Airlines is a company in the air travel industry, Wal-Mart operates in the retail industry, Apple Inc. is in the information technology industry while Nike Inc. deals with athletic apparels. All the four companies use differentiation strategy to gain competitive advantage.