Differentiation strategies are attractive in product or service industries whenever buyers' needs and preferences are too diverse and therefore a standard product cannot satisfy the entire market. This gives opportunity for companies to study or research the market and find out a distinct set of buyer-desired product attributes into its product or service offering that are distinct from its rivals. Competitive advantage results once a sufficient number of buyers become strongly attached to the unique set of attributes offered by the company.
Successful differentiation allows the firm to:
charge a premium price
increase sales by making more persons aware of the product
increase sales by more frequent purchase by loyal customers
Differentiation through all Activities of Value Chain
Porter strongly stated that differentiation is not limited to the product alone or marketing and advertising activities. All value chain activities have the potential to provide differentiation benefits to the buyers.
Buyers have to perceive the differentiation features and benefits to pay the premium. Hence the company has to make efforts to make the buyer aware of the differentiation features and benefits.