Differentiation can be defined as the process of adding a set of meaningful & valued difference to distinguish the companies offering from competitors offerings.

All products can be differentiated to some extend, but not all differences are meaningful or worthwhile. A difference will be stronger to the extend that it satisfy the following criteria:-

• Important : The difference delivered a highly valued benefit to a sufficient number of buyers.

• Distinctive: The difference delivered in a distinctive way.

• Superior: The difference is superior to other ways of obtaining the benefit.

• Preemptive: The difference can not be easily copied by the competitors.

• Affordable: The buyer can afford to pay for the difference.

• Profitable: The company will find it profitable to introduce the difference.

The number of differentiation opportunities varies with the type of industry. There exist four types of industry based on the numbers of available competitive advantages & their sizes.

1. Volume Industry: One in which company is can gain only a few but large competitive advantages. In the construction equipment industry, a company can strive for a low cost position or highly differentiated position & win big on either basis. Profitability is correlated with the company size & market shares.

2. Stalemated Industry: One in which there are few potential competitive advantages & each is small. In the steel industry it is hard to differentiate the product or decrease manufacturing costs. Company can try to heir better sales people, entertain more lavishly, and the like, but these are small advantages. Profitability is unrelated to company market share.

3. Fragmented Industry: One in which companies face many for competitive advantages is small. A restaurant can differentiated in many ways but end upnot gaining a large market share. Both small and large restaurant can be profitable or unprofitable.

4. Specialized Industry: One in which companies face many differentiation opportunities, and each differentiation can have a high pay off. Among companies making specialized machinery for selected market segments, some small companies can be profitable as some large companies.