Certified Supply Chain Professional (CSCP) Practice Exam

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What does 'differentiation' in a business strategy imply?

  1. Competing only on price

  2. Offering more features than competition

  3. Targeting a broad market

  4. Focusing on the lowest operational cost

The correct answer is: Offering more features than competition

Differentiation in a business strategy primarily refers to the approach of offering unique features, benefits, or services that set a company’s products apart from its competitors. This strategy is aimed at creating a perceived value in the minds of customers. By providing more features, higher quality, or exclusive services, a company can appeal to customers who are willing to pay a premium for these unique attributes, thus reducing direct price competition. This approach contrasts with merely competing on price, which is a strategy focused on minimizing costs or lowering prices to attract customers. Focusing on a broad market without distinguishing the product may dilute the unique qualities and advantages that differentiation seeks to achieve. Likewise, concentrating solely on the lowest operational cost does not align with the essence of differentiation; rather, it centers on efficiency and cost leadership, which does not inherently create unique value for the customer. Overall, by emphasizing superior features and value, a differentiation strategy can build customer loyalty and potentially lead to higher profits, as customers recognize the benefits that justify a premium price.