Concept of Differentiation

Differentiation corresponds to one of the generic strategies described by Michael E. Porter. In this kind of strategy, the company seeks to be the only one in it’s’ activity sector in the most valued dimensions by the consumers. In this strategy the company selects one or more attributes most valued in the market, positioning itself in a unique form to satisfy the consumers’ needs. According to Porter, this peculiarity will allow the company to obtain a reward through a “price-award”.

The ways to achieve differentiation are distinct depending on the activity’s sector. For example, it can be achieved at the level of its own product, at the level of the distribution channel, in the communication way, among many others. A sustainable differentiation requires that a company executes in a unique way several activities of high value added for the consumer and that has a strong influence in the purchasing process.

A company who chooses to follow a differentiation strategy will only have success if its “price-award” will be superior to the rise of costs incurred to become unique. Therefore, the company should always search for differentiation forms that provide a “price-award” superior to the differentiation costs. This fact leads that the company which chooses for the differentiation can never ignore the costs, and shall reduce costs in all areas that don’t affect the differentiation.

 

Translated from Portuguese by Susana Saraiva, Portuguese-English and English-Portuguese translation specialist. Contact: spams@sapo.pt.