A differentiation strategy calls for the development of a product or service that offers unique attributes customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow firms to charge a premium price. The underlying rationale is that the higher price will more than cover the extra costs incurred in offering a unique product. Because of the product’s unique attributes, this may allow firms to pass on the costs to their customers if suppliers increase their prices, because substitute products will be difficult to find.
Firms operating successful differentiation strategies often have the following internal strengths: access to a leading knowledge base and scientific research, highly-skilled and creative product development teams, strong sales teams based on well-positioned brands with the ability to successfully communicate the product’s perceived strengths in terms of customer benefits, and a corporate reputation with high brand equity for quality and innovation.
The risks associated with a differentiation strategy include imitation by competitors and changes in customers’ taste. In addition, firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments.
Levels of differentiation strategies
From a brand perspective, firms have to master the challenge of differentiating in a way that is meaningful and relevant to their customers. The differentiation struggle can take different forms. There are typical patterns of how a brand’s differentiation strategy changes and evolves over time when markets mature and competition intensifies. The five primary market differentiation strategies can be compared based on the criteria of market penetration and market maturity.
- The first differentiation strategy is technology differentiation.
- The next level is price/quality differentiation.
- The third level is product differentiation.
- The next level up is customer service differentiation.
- The highest level of market differentiation is user experience differentiation.
Generic IP strategy: value-added monopoly
The value-added monopoly strategy focuses on the creation of exclusivity for user-relevant features, or rather for perceived customer benefits. This means that IP must understand the customer perspective and the marketing approach for the product. The technological basis for the relevant features typically has to be protected with patents, while a unique communication position is typically achieved with trademarks and design rights.
The companies following a differentiation strategy accompany this with a value-added monopoly from the IP side. A critical prerequisite is the close interaction of IP with marketing and product management. This approach is typical for consumer products and the automotive industry, but these industries are not the only ones which use value-added monopolies. This generic IP strategy can be observed and applied wherever a differentiation strategy is appropriate in B2C and B2B markets.
In addition to the protection of the customer benefit, it is essential to block competitors to avoid a comparable benefit offer to the customer. This leads to a high degree of perceived exclusivity. Because of the intense competition in the respective markets, documentation and protection is critical. First-mover advantages are associated with this strategy. To circumvent the intrinsic time trap problem, it is important to continuously adapt the IP portfolio which protects the unique selling proposition in terms of legally enforceable exclusivities and offers the opportunity to reach a unique communication position.
The questions are:
1 . Which generic IP strategy is used by ARRI?
2 . How can the maturity of IP management be assessed in a company based on the example of ARRI?
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