What Is a Differentiation Strategy? (Plus Benefits)

By Indeed Editorial Team

Published 5 July 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

In many commercial markets, consumers can choose from a selection of similar products and services, each with its own unique features. The companies that make these products and services often use plans, called differentiation strategies, to establish their brand in a competitive market. Learning about these techniques can help you understand how companies can increase their revenue and build a loyal customer base for their products and services. In this article, we define differentiation strategies, describe different types of these strategies, explain the benefits of using the techniques and provide steps for creating your own.

What is a differentiation strategy?

A differentiation strategy is a technique that companies use to distinguish themselves in their market. By showing customers that their products and services are unique, a company's representatives can increase brand awareness and revenue. Typically, these strategies involve several departments in the company, like sales, marketing and operations. These strategies contain one or more differentiators, which are aspects of the product or service that make it unique, like price or company values. For example, a shoe company may use a strategy that appeals to customers' values by donating part of its revenue from shoe sales to charitable causes.

Types of strategies

There are two major types of these strategies:

Broad strategy

Companies that adopt a broad strategy apply the same differentiator to their entire range of products and services, appealing to a wide group of consumers. For example, a company that makes electric vehicles may focus on sustainability by making their cars more energy-efficient. The company may produce marketing materials and case studies that show the environmental advantages of their electric vehicles for all drivers. The company can emphasise sustainability and conservation across a line of electric cars so that consumers can choose any product and receive the benefits of this type of strategy.

Narrow strategy

Companies that adopt a narrow type of strategy create specialised products that have varied differentiators and appeal to niche audiences. For example, a company that creates skincare products may have product lines for people of varying ages and skin types. The company's sales and marketing teams can emphasise the benefits of using their product for specific skin conditions and work with customers to find the ideal match for their needs. Another example of a narrow strategy is a company that offers varying price levels for landscaping services, with different tasks included in each level.

Benefits of using these strategies

Here are some ways that using one of these strategies can benefit a company:

Brand awareness

When a company has a distinct product or service, the company's marketing and sales team may find it easier to build a brand that connects with customers. Product developers might create a product that relates to the company's key values or mission statement, allowing marketers to create a brand that encompasses the entire company. For example, a snack food company may have a marketing strategy that focuses on the company's use of organic ingredients for all its snacks. The company's marketing team can create a brand image that includes healthiness, which may resonate with a large public audience.

Customer loyalty

When a company's products and services are unique, customers may be more loyal to the brand and less willing to accept substitutions than they are for more generic brands. Customer loyalty can be particularly effective in brands that emphasise quality, sustainability or moral values in their marketing strategy. If customers believe in the values that the brand conveys, they may choose the brand over less expensive alternatives. For example, a customer who believes in preserving the environment may prefer to buy a handbag made from recycled materials, even if it costs more than other handbags on the market.

Related: Customer Relations: Definition, Importance and Examples

Employee satisfaction

Employees who believe in the product or service they provide may feel increased satisfaction in their daily work. When companies create distinctive brands that align with core values, they can encourage a positive corporate culture. For example, a sock company can distinguish itself by only using recycled fabrics in the products it sells. Many companies who use these strategies apply their values to other aspects of the business, so the company may use sustainable production methods, too. Employees who are passionate about conservation may be proud to work for a company that sells a unique, sustainable product.

Related: 15 Ways to Improve Employee Retention at Your Workplace

Opportunities for growth

By promoting a unique feature in their product, companies can expand their offerings to related products and services that align with their brand. For example, a company that builds a reputation with a successful line of natural soaps and personal hygiene products may expand into natural home cleaners or laundry detergents. Because the company has a reputation for using natural ingredients, consumers may trust the brand enough to try the new line of products. This can make it easier for the company's marketing team to promote the new product since the company already has a group of interested customers.

How to create your own strategy

Here are five steps you can take to implement one of these strategies for a company:

1. Determine company values

Many companies use marketing strategies that connect to the company's core values or mission. The company's leadership team may meet to discuss the factors that drive the company and create a list of core values. For example, employees at a company that produces pet medicine may share a common love of animals, while a technology company may be driven by innovation. To identify a company's key values, you may read the organisation's mission statement or speak to the board of directors to get their opinion. Once you create a list of values, you can choose one to use.

Related: What Are Mission and Vision Statements? (With Examples)

2. Choose differentiators

After selecting a key value to emphasise, a company's stakeholders can choose the differentiators they wish to use in their strategy. At this point, they may decide between a broad and focused product development strategy for their products and services. For example, the leaders of a company that produces pet food may choose a broad strategy that involves using organic ingredients in all their food or a focused strategy that involves creating unique food blends for pets with special dietary needs. While some companies use multiple differentiators in their strategies, many focus on a single trait.

3. Create products or services

A company's product development team can research cost-effective and reliable ways to create unique products that align with the marketing team's strategy. If the team is creating a brand new type of product, they may hire product engineers who create prototypes of new products and design manufacturing processes. Companies in the food production and personal care industries may employ chemists and try many ingredient combinations. Depending on whether the company is using a broad or focused marketing strategy, the product development team may create one or more different products or services.

Related: What Is a Product Roadmap? (With Types and What to Include)

4. Develop a brand identity

By creating a brand identity that relates to the company's strategy, marketing professionals can reach a wider consumer base and build a positive reputation for the company. Brand identity includes the company's logo, slogan and the values it features in its marketing and sales messages. Marketers may include information about the company's differentiator in the content they post to the company's website and social media accounts. For example, marketers for a lightbulb company whose strategy emphasises value may create videos showing how long their lightbulbs last compared to other options and how much money customers can save.

Related: Brand Design Definition (With Importance, Steps and Tips)

5. Evaluate outcomes

A company's leadership team may hold monthly meetings to discuss the effect of this strategy on the company's revenue and make adjustments. Since these strategies involve multiple departments, the directors of the departments may present information about the strategy's cost and profits. For example, in a company that makes specialised hair care products for people with different hair types, the operations and product development directors may explain how much it costs per month to create the various products. In the same meeting, the sales director can provide sales reports for the different products.

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