6.2 Differentiation Strategy: Understanding Value Drivers
The goal of a generic differentiation strategy is to add unique features that will increase the perceived value of goods and services in the minds of the consumers so they are willing to pay a higher price. Ideally, a firm following a differentiation strategy aims to achieve in the minds of consumers a level of value creation that its competitors cannot easily match. The focus of competition in a differentiation strategy tends to be on unique product features, service, and new product launches, or on marketing and promotion rather than price. For example, the carpet company Interface is a leader in sustainability and offers innovative products such as its Cool Carpet, the world's first carbon-neutral floor covering. Inter-face's customers reward it with a willingness to pay a higher price for its environmentally friendly products.' A company that uses a differentiation strategy can achieve a competitive advantage as long as its economic value created (V — C) is greater than that of its competitors. Panel (a) in Exhibit 63 shows that Firm B, a differentiator, achieves a competitive advantage over Firm A. Firm B not only offers greater value than Firm A, but also achieves cost parity (meaning it has the same costs as Firm A). However, even if Firm B fails to achieve cost parity (which is often the case since higher value tends to go along with higher costs in terms of higher-quality raw materials, research and development, employee training to