Differentiation strategy involves the development of unique products that differ significantly from those of competitors. By doing so, a company can convince customers to accept higher price points, which in turn results in higher margins. This strategy requires that a company continually invest in enhancing its products, so that it always maintains an edge over its rivals in the features being offered to customers. To be successful with the differentiation strategy, a company must have the following:
A top-tier team of product designers and marketing personnel.
High-quality products and services.
A heavy investment in branding, so that the targeted customers will recognize the products that the company has developed for them.
If the firm steps back from any of these efforts, then the perceived level of differentiation will decline over time, making it more difficult to maintain the high price points.