There would be similar reactions among wholesalers and other members of the supply chain. A distinctive capabilityis an ability to do something no other competitor can … For example, collusion occurs in the tobacco industry where the government sets the level and kind of taxes on tobacco and cigarette firms and dictates the price they can charge. The aim of total quality does not vary by firm, only by its size and the market it operates in. Since the market leader has the highest brand recognition in the market, competitors will choose to imitate and try to improve the overall value-added to the customer. Share this: Apple is an American corporation that designs, manufactures and sells electronics, computer hardware and software, and personal computers. But sometimes products are differentiated based on misleading promises, or on trivial characteristics like label color. The cost difference between low cost competitors & the differentiated business is too high C. Obsessive cost cutting can shrink other competitive advantages … Most differentiation strategies are aimed at establishing a “different” relationship with the existing customers, not necessarily at attracting new ones. Dimond Effect: A Risky Strategy: The Dimond effect only pays off for a company if it is able to increase its share and maintain it over time. Then rivalry within the industry is likely to switch to price-based competition. Since most differentiation strategies entail high production costs, the market leader facing this type of risk is likely to lose market share to a lower cost producer, since it cannot gain market share without offering a price discount. The Dimond effect is a result of the product fad to which the economy is connected. Here you'll find all collections you've created before. As the number of products offered increases in the market, the product differentiation strategy becomes more profitable. Risk Reduction Consumer research can help to reduce the risks of product differentiation. Consumers' choices are often informed by word of mouth and other information sources. For example, marketers might learn that while large numbers of people like the idea of fat-free pies and cakes, only a handful actually choose these options when offered traditional baked goods. As a result, the differentiation strategy becomes an evolutionary game, involving the improvement of a product through matching it with the market leader’s price. Customers may find the price differential between the low-cost product and the differentiated product too large. Additionally, various firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments. Nevertheless, the strategy is subject to certain risks like imitation by competitors, change in … Even when it has a solid basis for differentiation, a brand's target audience may be too small for profitability. If it loses its share after a while, then it will retrieve its resources and those of competitors the only cost of which will be the initial minimum loss of resources. How Apple Uses Differentiation Strategy to Gain Competitiveness. By doing this, the unit cost per unit decreases allowing it to sell for a lower price. The big risk when using a differentiation strategy is that customers will not be willing to pay extra to obtain the unique features that a firm is trying to build its strategy around. The company must use only one out of three competitive strategies. For example, the inputs used for the production of each batch may be altered by the firm. My Accounting Course: What is a Differentiation Strategy? //=c.offsetWidth&&0>=c.offsetHeight)a=!1;else{d=c.getBoundingClientRect();var f=document.body;"pageYOffset"in window?window.pageYOffset:(document.documentElement||f.parentNode||f).scrollTop);d=d.left+("pageXOffset"in window?window.pageXOffset:(document.documentElement||f.parentNode||f).scrollLeft);f=a.toString()+","+d;b.b.hasOwnProperty(f)?a=!1:(b.b[f]=!0,a=a<=b.g.height&&d<=b.g.width)}a&&(b.a.push(e),b.c[e]=!0)}y.prototype.checkImageForCriticality=function(b){b.getBoundingClientRect&&z(this,b)};u("pagespeed.CriticalImages.checkImageForCriticality",function(b){x.checkImageForCriticality(b)});u("pagespeed.CriticalImages.checkCriticalImages",function(){A(x)});function A(b){b.b={};for(var c=["IMG","INPUT"],a=[],d=0;d