We are experts at ignoring and tuning out. We especially ignore things that are like other things we’ve seen before. It’s a natural response to the clutter that surrounds us every day. Our brains have learned to look for the new and the different, and to ignore that which is undifferentiated. Most of marketing is about efficiently defeating this built-in, natural reflex, and causing potential customers to see our offering as new and different and valuable. In product and service positioning, it’s vital to stand out. In this article I will talk about some simple ways of setting yourself apart from the pack. First, some preconceptions that we might as well remove right at the beginning.
- Nothing has to be a commodity
- Differentiation isn’t always about the product
- Business is not a war with your customers.
Here’s an instructive story about differentiation in the most difficult of circumstances:
You might think that construction sand is the ultimate commodity. You can get it from anywhere, the standards are very basic. It comes off the back of a truck. Well, it turns out that construction sand is a critical deliverable in the life of a building project. In large cities with unionized workers, the cost of an idle construction team is crippling. So if the sand is late, it can cost you a fortune.
One construction sand company in New York figured this out, and added a performance guarantee to their product. They charge significantly more than their competitors, but +they guarantee that if the sand is late, they will pay the costs of the idle workers.+ Suddenly they have added risk management into the mix. Risk management is a very important thing for a construction boss, with thousands of things to worry about and coordinate.
This illustrates all three of the above points. While you might think sand is a commodity, someone found a way to charge significantly more and to create loyal customers. They created service-level differentiation – appropriate because the product itself is not a good candidate for change. They found a way to create real value for their customers. Customers are pleased to pay more for sand, because they have a guarantee that they won’t be wasting money elsewhere in the construction process.
Classes of differentiation
There are many ways to differentiate a product. Here are some of them, listed in alphabetic order.
- Bundling – combine multiple items into a single price or package to increase value to your customer. This can also help by simplifying the buying process for the customer.
- Cost – reduce the cost (or increase it for an increased perception of quality!). If your product sells in volume, it’s well worth doing pricing experiments in order to understand the elasticity of your market, and if possible to find out if there’s a correlation between customer satisfaction and the price paid.
- Customization – allow customers to specify variants to meet specific needs, or build in the ability for the end user to customize the product. This is used to advantage in many markets (e.g. software “skins”, or with accessorization for clothing or consumer electronics.
- Product features – add capabilities that competitive offerings don’t include. This works so long as the capabilities you add are relevant and interesting to the market – otherwise they can work against you by increasing costs, increasing the complexity of the sale, and confusing the customer.
- Product performance – build a product that performs to a higher level. This is the traditional answer for technology products like computers: more GHz, more memory, more disk, faster graphics, bigger screen etc. Actually one of the insights Intel had was that by segmenting their market they could identify the optimum price / performance combinations for each segment, which increased perceived value and protected pricing for the top end of the market.
- Service – offer support, training, maintenance, after-market or any of a number of service types that increases customer confidence in the product, increases loyalty, and allows you to retain a relationship with the customer. This relationship in and of itself is a valuable differentiator, as well as creating opportunities for you to up-sell new offerings over time.
- Warranty – a clearer promise of quality and customer satisfaction can differentiate your product. In some countries, the statutory warranty is better than others – you may even get credit simply by acknowledging the conditions of the statutory warranty in your product documentation.
These are seven different approaches you can take to achieving differentiation with your product or service. Every product can benefit from some of these types of differentiation.
Deciding how to differentiate
Differentiation is a strategic decision, in that it has relatively long-term implications for your business. Certainly you can try some experiments, and you should. But to build sustainable value and a clear perception of that value in the minds of your customers, you need to decide on your differentiation, and perfect it.
The key is to understand the three basics in any business:
- Strengths – the aspects of your product, service, company, channel etc. that are potentially of value to customers, and could be the basis of a differentiation message.
- Competition – the products and services that represent realistic alternatives to your offering
- Customers – the common elements and the differences that make up your customer base.
Once you’ve decided on your approach to differentiation, you will be able to create messages that will persuade customers to choose your product or service.
There are many ways to differentiate. We’ve briefly covered just the main ones. You can also consider innovations in your channel, your manufacturing and cost structure, and in partnerships. But those are topics for another article. The key points in the process are these:
Find some issue that is important to your customers, demonstrably true, and differentiated from your competition.
- Build it into your business process so that it becomes a sustainable advantage both in terms of product creation and customer experience.
- Market it clearly to your target customer – build your campaigns around your key differentiation.
- Go back and look for more ways to differentiate. Repeat as your market grows and changes.
Differentiation is an element of business strategy. Once you understand the entire cycle from product concept through to ultimate disposal, you will be able to develop differentiation in ways that brings value to your business and to your customers.
In our consulting practice we have helped numerous companies achieve differentiation: let us know if we can help you.
Tim Barnes is the author and publisher of the Strategy and Marketing website at www.marketspeed.net. He is a professional strategist and marketer with over 20 years experience in a wide range of industries, working with clients such as Herman Miller, Knoll, Ford Motor Company, Texas Instruments, Novell and Microsoft. He has developed a range of unique tools for business analysis, market research and strategy development. He can be reached by e-mail via our CONTACT page.