5 types of market differentiation strategies (Plus benefits)

Updated 20 March 2023

Market differentiation is one of the most reliable ways to improve company visibility. Successful companies establish niche angles from which to promote their services, also known as a unique selling point (USP). Learning how to develop a market differentiation strategy can help your marketing and publicity department affirm their company's identity. In this article, we discuss market differentiation strategies, including common types of differentiation strategy, explain their benefits and explore steps for how to build your own market-share strategy.

What are market differentiation strategies?

Market differentiation strategies are specialised types of business strategy that highlight how a business stands out from competitors. These strategies focus on the position of a business in its respective market and how it can do more to set itself apart. There are many types of differentiation strategies. Companies may opt to use a single strategy or combine multiple strategies for more effective marketing.

Why are market-share strategies used?

Businesses implement these strategies to drive the visibility of brand identity. By improving brand visibility, businesses set themselves apart from competitors. This helps increase customer attraction, which can increase customer retention and the conversion to sales of deliverables. Market-share strategies are also used to attract higher coverage levels, such as on social media or within traditional reporting outlets.

Benefits of using market differentiation strategies

A market differentiation strategy can help create demand and develop a customer base. Consider these benefits of using a market differentiation strategy:

Solidifies brand image

Developing a market differentiation strategy helps to solidify brand image. This is because the purpose of the strategy is to find ways in which the business differs from other companies within the same sector. In doing so, a business' identity can become stronger. This means that deliverables see further development with these market strengths in mind. It's also useful for employees as they can then complete their tasks with a renewed mission, knowing what they're striving to achieve.

Increases customer attention

Market differentiation strategy development is important as it ultimately increases the attention that the business gets from customers. This includes both new and returning customers. The more attention that a company gains, the higher the figure of potential revenue. The more money that a business earns as a result of attracting customers, the higher its pure profit is going to be after paying all the necessary fixed and variable fees. An initial solid market differentiation strategy allows a business to focus on communicating with the target audience that's been earned and maintained by these market-share strategies.

Improves business reputation

Developing a market differentiation strategy is also useful for improving the overall reputation of a business. Customers generally favour the businesses that have developed their unique selling point and understand their mission and values. Especially in saturated business sectors, consumers look at the specialised information that sets each company apart. A company that distinguishes itself from the rest is more likely to be one with a strong reputation. This reputation helps to attract new customers, continuing the positive cycle.

Types of market differentiation strategy

There are multiple types of market-share strategies available for a business to implement. No one type of strategy is inherently better than the rest, as each type of market differentiation strategy has its advantages. Consider these five market-share strategies used by businesses operating in the U.K.:

1. Pricing strategy

Businesses often choose a market differentiation strategy based on pricing. This means they offer their deliverables at attractive prices, which is often lower than that of their competitors. The primary intention of a price-based market differentiation strategy is to persuade customers to become loyal to a business because of its lower prices. This cuts into the market share of their competitors by taking away their customers. Alternately, companies may choose to raise their prices in order to appear more elite and prestigious. This attracts a different type of clientele who's willing to pay more. This also helps drive profits.

2. Expertise strategy

When using an expertise-based market differentiation strategy, businesses promote themselves as being among the most experienced providers of what they offer, whether a product or service. This strategy can attract many customers because it can boost their confidence in what the company offers. More specifically, these strategies offer assurance that the deliverable offered by the business is more likely to be worth their money by providing details of higher quality and ways the product meets consumer needs. These strategies may also discuss a company's years of experience or offer references and testimonials.

3. Deliverables strategy

Businesses choosing deliverable-based market differentiation strategy set themselves apart by highlighting their unique products or services to their target audience. The term "deliverable" refers to anything that's provided to clients, whether a product or service. Deliverable-based market-share strategies are attractive to many customers as they like knowing that their purchase or investment is unique from other products. Deliverables that differ from others offered in the same industry also have the chance of becoming a trend, which drives visibility.

4. Convenience strategy

Businesses often advertise the convenience of their deliverables to clients, hoping this persuades them to invest in what the business provides. When this occurs, it's referred to as a convenience-based market differentiation strategy. Especially in an increasingly busy modern world, more businesses are choosing to make the convenience of their deliverables a main point of focus. If a customer has two options that do the same job and are at the same price point, but the second one promises to be easier to use, a consumer may be more likely to choose the latter product.

5. Diversity strategy

Diversity-based market-share strategies promote business values of inclusion and diversity both in the workplace and in the community. These types of strategies can attract significant market share of potential customers who want to support businesses that are reflective, compassionate and community-driven. Market-share strategies based on diversity are increasingly appealing, both to the spending dollars of consumers and to employees. This means that diversity-based strategies are finding a growing strength among many sectors, leading to uptake by companies.

What is differentiation in marketing?

Differentiation in marketing simply refers to how a company can set itself apart from other similar companies. Differentiation also occurs when marketing products or a line of products. When marketing a business or deliverable, differentiation is crucial, as it's the factor that provides the company with the opportunity to become a leading contributor to its sector or industry.

How to create a market differentiation strategy

Deciding on the best market differentiation strategy for a business is a task that requires ample consideration and research. Using the right market differentiation strategy improves a company's chances of success. Here are some steps to take to decide on a market differentiation strategy:

1. Conduct market research

Conducting market research is crucial for creating a market differentiation strategy. Before you can find the focus of your differentiation, it helps to understand your place in the market among your competitors. Start by researching the USPs and weaknesses of other companies. This can help you identify gaps in the market you can use to your advantage.

2. Analyse company positioning

You also need to explore the company's current position. It's important to thoughtfully analyse what the company does well and what you may consider its best contribution to the market. Examine areas in which the company may need improvement or ways that improvements could advance your image or product. As you consider the gaps you've discovered in your market, assess how your company can stand out as a leader. Consider holding company meetings or using surveys to identify new ideas.

3. Create the plan in drafts

Once the research has been completed, draft a rough market differentiation strategy plan. This includes an outline of what approach the company may take and any potential challenges the strategies may encounter. This draft is comprehensive at first. After review and approval, continue developing the plan into a more comprehensive document.

4. Implement your strategies in stages

The final step of the market differentiation strategy process is to implement it. Complete effective implementation in increments so that changes in the company's market position are trackable. Roll out notice of the market differentiation strategy to employees and senior members so they remain in the loop.