Differentiating the product or service of the firm means creating something that is perceived industry wide as being unique.
Differentiation may take the form of design or brand image, technology, product feature, customer service, dealer network, etc.
Ideally, the firm differentiates itself among several dimensions that are important to the customer.
Differentiation does not mean that the firm will ignore costs, although costs are not the primary strategic target.
Achieving differentiation may preclude gaining a high market share since it often requires a perception of exclusivity.
According to Porter, achieving differentiation implies a trade-off with a cost position if the activities required in creating it are inherently costly, such as extensive research.
FOCUS
The focus strategy targets a particular buyer group, segment of the product line, or geographic market.
Whereas low cost and differentiation are aimed at achieving their objective industry wide, focus is build around serving a particular target or niche extremely well. The strategy rests on the premise that the firm can serve its narrow strategic target more effectively or efficiently than more broadly based competitors.
The firm may achieve differentiation from better meeting the needs of the particular target or lower costs in serving the target. If the firm is good or lucky, it may manage to do both.
Even though the focus strategy does not achieve low cost or differentiation from the perspective of the market as a whole, it does achieve one or both in its narrow market target.
The focus strategy always implies some limitations on the overall market share achievable and involves a trade-off between profitability and sales volume, but not necessarily a trade-off with overall cost position.
Often the focus strategy of filling a limited need or offering a product that only a few buyers will purchase allows for products to be priced at a premium since the company is satisfying the desires of a small cluster of buyers.
Most winning midsize growth companies are leaders in market niches, often in markets they have created through innovation. Such niche strategies are often born of necessity, since these firms lack the resources to fight broad, head-to head battles with larger, entrenched competitors. They succeed by seeking out niches that are too small to interest the giants. Alternatively, some firms pick niches that can be captured and protected by sheer perseverance and by serving customers extremely well.
