Differentiation

Firms pursuing differentiation strategy offer products or services that are viewed as unique and valued by customers. They achieve differentiation advantages when price premiums exceed the extra costs incurred in being unique.

However, a differentiator cannot ignore costs. Its premium prices would be eroded by a markedly inferior cost position. Therefore, these firms must accomplish a level of cost equivalence or proximity relative to competitors. Differentiators do this by reducing costs in all areas that do not affect differentiation.

A striking trend that internet technologies have fostered among differentiators is the way businesses interact with customers. An example of that is the mass customisation that can be achieved. This factor enhances how companies respond to consumer demand. Although not a new phenomenon, mass customisation has been a growing trend with the advance of flexible manufacturing systems. These systems make manufacturing more adaptable to specialisation and customisation. The internet has enhanced this process by facilitating direct communications between manufacturer and consumer.

The internet has influenced this by bringing the customer closer to the manufacturer. Dell Computer Corporation has created an on-line system allowing customers to configure computers to the customer’s specifications. Submitting the online order results in mass customisation of computer exactly matching customer specifications with very short cycle times. Strategies of on-line mass customisation have enabled firms to reduce costs while enhancing product offerings, maintaining reputations of quality, and preserving brand image.

Technological innovation has forced companies to revisit the traditional approaches of differentiation. This is because customers have changed the way they view quality. Rather than forming a relationship with a sales representative or connecting with brand image, customers now demand speed of response and delivery, accuracy in order processing, and customisation capabilities of near-commodities such as computers.

As with overall cost leadership strategies, differentiators find that there are opportunities coupled with distinct challenges. Forward thinking organisations anticipate situations where they can capitalise on internet advantages throughout the value chain including:

· Internet-based knowledge management systems linking all parts of the organisation to shorten customer response times;

· Real-time access to manufacturing operation status such as scheduling and delivery information to empower sales forces and channel partners;

· Personalised on-line access to provide customers with (upstream or downstream) with their own “site within a site” to track orders and process new orders;

· Rapid on-line responses to service requests and fast feedback to customer surveys and product promotion to improve marketing efforts

· Access to real time sales and service information to continually update research and development efforts

· Automated procurement and payment systems to provide suppliers and customers detailed status reports and purchasing histories.

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