4 Differentiation

    A firm differentiates itself from its competitors if it can be unique at something that is valuable to buyers. Differentiation is one of the two types of competitive advantage a firm may possess. The extent to which competitors in an industry can differentiate themselves from each other is also an important element of industry structure. Despite the importance of differentiation, its sources are often not well understood. Firms view the potential sources of differentiation tdb narrowly. They see differentiation in terms of the physical product or marketing practices, rather than potentially arising anywhere in the value chain. Firms are also often different but not differentiated, because they pursue forms of uniqueness that buyers do not value. Differentiators also frequently pay insufficient attention to the cost of differentiation, or to the sustainability of differentiation once achieved.