Differentiation is what sets an offering apart from the available alternatives in a way the customer perceives and is willing to pay for. Without it, the only argument left is price, which leads to margin being squeezed. Differentiation can come from the product itself, but just as often from what accompanies the product – speed of delivery, warranty, the way service is handled, specialisation in a single industry, or the model of cooperation. A useful test is the question of what the customer would lose by switching to a competitor. If there is no answer, the differentiation is merely a claim in a presentation. Specialisation tends to be the most viable route for smaller firms, because in a narrow category a genuine advantage can be achieved even with limited resources, whereas in a broad market it cannot.
See also: Brand positioning, Category design, Pricing of services.
