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Differentiation Strategy vs Low-Cost Tactics as a Manufacturer

Differentiation Strategy - What do you mean?

A 'differentiation strategy' for manufacturing companies, and really, any company, is the making of a decision on how to position themselves in a competitive marketplace.

Two dominant strategies are 1) a differentiated product or 2) a low-cost provider. Manufacturers should weigh the following considerations when deciding between differentiation or low-cost strategies:

  • Target customer priorities. Does your customer base value specialized features or place more importance on price? This informs whether differentiation or cost leadership is more viable.

  • Competitor benchmarking. Analyze whether current competitors compete on the uniqueness of the product or on price. If competitors are already low-cost providers, differentiation may be an open opportunity.

  • Capabilities and resources. Does your operational backbone and expertise lend itself more to innovation or efficiency/cost-savings? Leverage your existing strengths.

Window Shopping for a Manufacturer

Pursuing a strategic advantage using Differentiation typically requires:

  1. Investment - R&D and product development are regular investments in designs and tactics that incorporate valued features that customers request & earn a premium price.

  2. Marketing - Differentiation in marketing strategy and use of advanced SEO technical tools requires talent that can holistically and effectively communicate the differentiation story.

  3. Complexity - Potentially more complex manufacturing processes to deliver specialized offerings.

Embracing a low-cost leadership strategy often involves:

  1. Economies of scale - Driving higher production volumes and maximizing capacity utilization.

  2. Cost management - Overhead and operational expenses are the target.

  3. Process innovations - Ways to reduce labor & material costs.

  4. Less Profit Per - Accepting potentially lower margins in exchange for market share gains.

Whichever path a manufacturer pursues, the capabilities and messaging must align. Trying to straddle both strategies often leaves a company stuck in the middle with buyers confused as to how to deal with you - too much of that and they move to the next provider. Identifying the right positioning and making the necessary investments to back it up drives rewards. Both tactics can be profitable, but neither will work without a well-thought-out strategy behind them.

What competitive strategy do you think is best suited to your manufacturing business's strengths? Share your perspective below!

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