Differentiation Strategy Essay

The next option is a broad differentiation strategy providing products or services that offer benefits different from those of competitors and that are widely valued by buyers. The aim is to achieve competitive advantage by offering better products or services at the same price or enhancing margins by pricing slightly higher. Differentiation may be achieved in a number of ways. The product may incorporate a more innovative design, may be produced using advanced materials or quality processes, or may be sold and serviced in some special way.

Often, customers will pay a higher price if the product or service offers a distinctive or special value. Differentiation strategies offer high profitability when the price premium exceeds the costs of distinguishing the product or service. There are some companies that have successfully pursued differentiation strategies, such as Mercedes and BMW in automobiles, American express in travel services, Bose in stereo speakers, Along with cost leadership, IKEA also offers some differentiated features that appeal to its target customers, including Numerous ways in which differentiation can be achieved:

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Product Features It is a way in which firms can attempt to influence customer perceptions. It is to modify the objective properties of the products or services they sell. IKEA target is to designing beautiful products that are inexpensive and functional. * Apple: It incorporates superior design in all its products so that these stand out from its competitors’ products. Apple’s design philosophy is based on minimalism. It removes clutter both from its products’ outward appearance as well as from their user interface.

It is no coincidence that Apple users rave about the exceptional user interface of their iPads, iPods or iPhones. In addition, Apple tries to exert control over the users’ experience with its products. So, apart from the hardware, the company also develops the software so that the user has the best possible experience. Service * In-store playrooms for childrenWheelchairs for customer use * Extended hours, normally opened until 9pm * Restaurant & Cafe: It can provide shoppers a breather and encourage them to keep going * Stores outside those in the home country have “Swede Shops” that sell Swedish food.

IKEA believes that these services and products are uniquely aligned with the needs of its customers, who are young, not wealthy, likely to have children, and because they work for a living, need to shop outside of regular hours. * McDonald’s strove to meet a customer wait time at no more than five minute in line and 30 seconds at the counter. * Free wifi in store: Starbucks 7-Eleven (formerly Southland Corporation) has practiced differentiation to avoid direct competition with large supermarket chains. It offers consumers greater convenience in the form of nearby location, shorter shopping time, and quicker checkout.

It achieves these benefits by designing a business system within the value chain that is different from that of supermarket chains in several key respects: smaller stores, more store locations, and narrower product line. Its approach is higher cost than that of supermarket chains, so 7-Eleven must ordinarily charge higher prices to achieve profitability. Shopping experience IKEA customers are actively involved in the shopping experience. The IKEA concept relies on customers to choose, collect, transport and assemble IKEA products themselves. Customer involvement contributes to IKEA low prices.

That is the idea behind:“You do your part. We do our part. Together we save money”. Reputation IKEA had been successful in almost all countries, because of public awareness of the IKEA brand. IKEA is far more than a furniture merchant. It sells a lifestyle that customers around the world embrace as a signal that they have arrived, that they have good taste and recognize value. IKEA also operates with a few companies such as trade unions, NGOs and it has partnerships with UNICEF, Save the Children and WWF (the global conservation organization).

IKEA and these partners are focusing on improving children‘s rights and they are promoting responsible forestry, better cotton cultivation and reduction of CO2 emissions. These also increase the reputation for IKEA. Innovation You can also attempt to position yourself as the innovator in your particular market. Strive to be the first to offer new products or services, or offer creative promotions to attract customers and keep them coming back. Customers may choose you over your competitors if they expect to see something new and different each time they enter your establishment, as opposed to the “same old thing” offered by the others.

IKEA is having a product strategy but in order to have a competitive advantage in the market. IKEA could become a more customer focused company in certain countries. This could help them come with more customers focused and more innovative products which might result in a higher competitive advantage in many different new markets they wish to operate in future, or are currently operating in. For example, Americans prefer to store most of their clothes folded, and Italians like to hang. The result was a wardrobe that features deeper draws for U.

S. customers. * McDonald’s understood that the parent was making the purchasing decision, most likely based only on price. So they put $0. 5 toy in with the hamburger, French fries and Coke. Then they gave it a special name, calling it a Happy Meal. Then they marketed it to the kids. Image Benefits of differentiation According to Porter differentiation may generate superior profitability for the reason that it provides insulation against competitive rivalry * Brand loyalty by customers and resulting lower sensitivity to price.

It also increases margins, which avoids the need for a low-cost position. The resulting customer loyalty and the need for a competitor to overcome uniqueness provide entry barriers. * Differentiation can mitigate Supplier Power by Absorbing price increases due to higher margins or passing on higher supplier prices because buyers are brand loyal. * It clearly mitigates buyer power, since buyers lack comparable alternatives and well differentiated products reduce customer sensitivity to price increases. Finally, the firm that has differentiated itself to achieve customer loyalty should have well positioned relative to Substitutes than its competitors. Because customer loyalty tends to reduce new product trial and brand switching. Besides reducing the five threats, differentiation creates value by enabling a firm to charge a premium price that is greater than the extra cost incurred by differentiation. Risks of differentiation strategy * There are difficulties of sustaining differentiation * Differentiation involves higher costs There is a risk of creating differences that customers do not value, also customers may no longer need the differentiation factor. * Customers might become price sensitive and choose on price rather than uniqueness * Imitators may narrow the differentiation * Change in customer demand replaced by new product innovation. Specially rivals who pursuing a focus strategy may be able to achieve even greater differentiation in their market segments. http://www. scribd. com/doc/60917979/IKEA-s-Strategic-Management http://www. scribd. com/doc/59951004/Case-Analysis-IKEA http://www. scribd. com/doc/60801662/Ikea-Final