Co-founder of Pay Pal, Peter Theil suggests that – ‘competition is for losers’. He advocates the merits of monopolies. While not advocating monopolies or suggesting that anyone is a ‘loser’, I am of the opinion that competition can be rendered almost irrelevant, if a business can successfully differentiate itself or its products in a way that sets them apart from the competition in the minds of consumers.
I would argue that there are few more powerful tools available to the marketer than product differentiation. Product differentiation can be the key to maximising sales and margins. Differentiation can also be the key to minimising marketing costs as a result of the inverse relationship between the level of effective differentiation and the dependency on promotion.
This paper examines product definition, turning a critical lens on goods and services, the benefits to be gained by effective differentiation, features of effective differentiation, the importance of trust, and strategies for differentiating your product or brand.
WHAT IS PRODUCT OR BRAND DIFFERENTIATION?
This section presents a definition of ‘differentiation’ and discusses the benefit of a value proposition, a unique selling proposition that creates a strategic competitive advantage.
1/20 – DIFFERENTIATE OR BURN CASH
US$33.87 billion and rising – the market capitalisation of UBER
For the past 11 years, considerable controversy has surrounded UBER. Questions have been raised about the likelihood of the business ever achieving profitability, the ethics of destroying the taxi industry in many parts of the world, and the real objectives of the business. What is not controversial, however, is the significant impact, for better or for worse, of UBER and its offshoot, UBER Eats. Interestingly, the business has carved out a significant share of the people moving business in many countries since it commenced operations in 2009. UBER now has a market capitalisation of US$33.87 billion.
The major factor that has driven the success of UBER, and indeed, many other disruptors is – ‘effective product differentiation’. These words will be used repeatedly in this paper, so let’s begin our discussion by defining them. “Effective’ is, of course, a qualitative term. In this case, it refers to differentiation that renders the competition less relevant. ‘Product’ in this refers to both goods and services. ‘Differentiation’ refers to a point or points of difference, often involving a ‘value proposition’.
The experts define ‘product differentiation’ as follows:
‘Product differentiation is a marketing strategy that strives to distinguish a company’s products or services from the competition. Successful product differentiation involves identifying and communicating the unique qualities of a company’s offerings while highlighting the distinct differences between those offerings and others on the market.’
To quote these ‘experts’ further – product differentiation:
- focuses consumer attention on one or more key benefits of a brand that make it better than other choices;
- may be reflected in the name, packaging, and promotion of a product;
- Involves a strategy that demonstrates that a product can do everything the completion can, but has additional benefits no one else offers.
Product differentiation is the process of ‘de-commoditising’ a product – making it more than the average or norm in a way that is relevant to consumer needs. As a result, the consumer will be more likely to purchase the product, require less encouragement to purchase, and pay more for it.
Effective differentiation is part of developing a consumer–focused ‘value proposition’. Experts define a value proposition as ‘an innovation, service, or feature intended to make a company or product attractive to customers’. With its APP, service guarantees, and accountability, UBER is an example of a business that has successfully differentiated itself. It has established a clear value proposition and a reputation for being ‘the ‘smartest way to get around’. Other examples include:
- iPhone – ‘where the experience is the product’
- Ikea – ‘a better everyday life’
- Zappos – ‘deliver wow through service’
I have noted slogans associated with each of the above products or brands. However, the value proposition goes far deeper than that. It reflects a customer-focused, tangible point of difference supported by effective branding. These are leading businesses in highly competitive markets who have made their competition less relevant by clearly and sustainably differentiating themselves and their products.
RECOMMENDATION – Make your competition less relevant and de-commoditise your product by developing and communicating client-focused, tangible, and a brand-supported value proposition.
2/20 – DEVELOP YOUR OWN PRODUCT CATEGORY
6.1 billion units sold
The 29th of June 2007 was a momentous day, not just for Apple, but, for telephony, communication in general, and the world at large. It was on this date that Apple unveiled and launched the first- generation iPhone – not just a fantastic new product for Apple, but, a disruptive product in the communication sector. It was the first ‘smartphone’.
The mobile phones, or cell phone, was launched in 1973 by Motorola. This was followed by a proliferation of brands and styles of mobile phones, sold at a range of price points. Every now and then, a new phone was launched. Each new offering had features that set it apart from competitive products. Of course, some product innovations were more successful than others. In this world, no business was more successful than Nokia. Then in 2007, everything changed. Apple replaced the mobile phone with a ‘smartphone’. A whole new category of product was born. On so many levels, the iPhone was difficult to compare with a mobile phone. As such, it warranted its own product category. In many respects, this is exactly the same strategy Apple adopted when it launched the ‘iPod’, which replaced the ‘Walkman’ and created its own category of music player.
Developing a product that can be positioned in a category of its own – at least for a period of time – is the ultimate in product differentiation.
Another great example of creating a new category of product involves a business called Keuring. In the 1990’s Keuring introduced K-cups – coffee pods – in 300 flavours. The pods sold for 50 cents each – or 10 times the cost of brewing a standard cup of coffee. By 2008, sales of Keuring coffee pods in the United States exceeded US$3.8 billion, and the margins were huge. Rather than offering a new coffee or a new and improved range – Keuring had developed a new category of product – one successfully copied by Nestle and many other since.
When you create a new category of product, others may copy you. However, that will take time. You most certainly have an opportunity to take the lead, and you are well placed to operate without significant competition for a while before rising above your competitors as the market leader. You may also be seen as the benchmark when they do come into the category. For a while and, potentially, in perpetuity – competition becomes less relevant.
Some of the world’s most successful brands have had as a cornerstone of their marketing strategy – a product or suite of products that sit in a category all of their own. The names of some of these products or brands have become common language for the product category. In some cases, the brand has even become a verb, think ‘Hoover’ (vacuum cleaners). In other cases, the brand has become a generic term for a category. For example, Biro (Bick ballpoint pens) is used for any pen, and iPhone has almost become a synonym for smartphone.
RECOMMENDATION – When developing a new product, consider the features and benefits that might be packaged in a way that enables you to position it as the only product in its category.
3/20 – FORGET USP AND GO SCA
US$949.70 billion market capitalisation
Alphabet is one of the largest corporations in the world, with a capitalisation of US$949.70 billion. Its major asset is, of course, Google. Google is one of the most successful businesses in the history of the planet and one of the most dominant brands in the world. It has a brand value of US$167.7 million. Differentiation has been central to the growth of Google. Decimation of competitors such as Yahoo has been central to the growth of businesses. This is further demonstrated by the growth of Facebook and the death of Myspace.
Differentiation can occur on a number of levels:
- Unique selling proposition
- Strategic competitive advantage
Experts define a unique selling proposition (USP) as ‘the one thing that makes your business better than the competition. It’s a specific benefit that makes your business stand out when compared to other businesses in your market’. A USP can be real or perceived, and it can involve one or more factors – all of which can be packaged by advertisers to build a campaign.
Experts define a strategic competitive advantage (SCA) as ‘conditions that allow a company or country to produce a good or service of equal value at a lower price or in a more desirable fashion. These conditions allow the productive entity to generate more sales or superior margins compared to its market rivals. The term coined by Harvard Professor Michael Porter, a strategic competitive advantage, delivers a unique capacity to differentiate sustainably. A great SCA will deliver a consistent USP.
In many cases, a USP is harder to sustain than an SCA. An SCA involves substance and development of a capability that is difficult to copy. The algorithms used by Google are very difficult to copy. They have delivered a consistently powerful USP for Alphabet. The same can be said for Facebook and its subsidiaries, Instagram and Whatsapp.
There is real strength in going beyond the superficial USP to develop a sustainable strategic competitive advantage, one that can permanently differentiate your product or business. In many respects, having a clear USP is the minimum a product or business needs. It is important to have a clear USP. However, it is more important to have a sustainable SCA – a unique capacity within your business to consistently deliver a point of difference designed to engage your primary target audience.
RECOMMENDATION – Look beyond the standard unique selling proposition and develop a strategic competitive advantage that will enable you to deliver a consistently strong USP.
THE IMPORTANCE OF DIFFERENTIATION
Product differentiation is important for two very good financial reasons. Firstly, effective differentiation can drive sales and margins. Secondly, differentiation can significantly reduce marketing costs. In other words, product differentiation can be the catalyst for significantly enhancing performance and profitability.
4/20 – INCREASE SALES AND MARGINS THROUGH DIFFERENTIATION
18% more for a woman than a man
I hesitate to go anywhere that involves a discussion of the exploitation of women, but here goes. Research suggests that in Woolworths and other retailers, a men’s Gillette razor sells for $14.00 while the woman’s product sells for $17.00 – 18% more. This is despite the fact that they are essentially the same product and perform the same function. The principal difference between the two products is colour. Shaving cream for men is $6.00 per can while shaving cream for women is $7.20. The product for women attracts a 20% premium.
These are just two of numerous examples of where differentiating a product can drive sales and margins. By telling women through, design, colour and in-store placement that a razor is specifically designed for them – it is more likely that they will buy and pay 18% more. By telling a woman that a shaving cream is for ‘sensitive skin’, placing it in a more floral can and putting it on a different shelf, the supermarkets and the manufactures can secure a 20% higher margin from women. This is effective product differentiation – especially given that the women have no knowledge as to whether there is a real difference between the products, and evidence suggests that there is not.
These are two simple examples of how differentiation can drive sales and add margin to a product. There are many others. Some involve differentiating two brands, while others involve differentiating one product from all the others and in so doing de-commoditising the product. The commoditising of products is becoming increasingly common, and prices are falling, along with margins. One of the drivers of commoditisation is the home brand. De-commoditising involves sufficiently differentiating a product that it stands out from the pack and is seen as offering additional value to commodities. There are many examples of this. Here are two:
- SKF, the world’s largest ball bearing manufacturer, has turned its extensive know-how in rotation technology into value-added services for manufacturing operations. Far from haggling over the price of commodity bearings, the company now helps its productivity conscious customers, such as pulp and paper manufacturers, to maintain their production machinery, reduce or eliminate downtime, and maximise plant yield. Many of these services come with performance guarantees that are offered on the basis of contracts that ensure continuity of supply, expert advice for plant operators, and long-term account retention for SKF. Today, the company’s service business is its fastest-growing and most profitable division.
- BASF, one of the world’s largest producers of industrial paints, has stretched out of its increasingly commoditised products into coatings for specialised applications, in addition to integrated coating systems and solutions. With the Integrated Paint Shop, an innovation in auto coating business, BASF offers to apply its vast know-how in paints to operate a car manufacturer’s paint shop, providing all coating products specified by the customer (including those produced by competitors) in addition to technical advice and logistical support. Under this concept, offered to an increasing number of carmakers including DaimlerChrysler, Volkswagen and Ford, BASF is paid not by the volume of coatings used – the common practice in the industry – but rather by the number of painted car bodies that pass the quality checks. The Integrated Paint Shop innovation has been a highly profitable addition to BASF revenues.’
Differentiation that is consumer-focused and tangible can drive sales and boost margins. It can add value to a product (de-commoditising it) and distinguish between two identical products making one appear more appropriate for a target market. This is, perhaps, the most important and far-reaching rationale for product differentiation.
RECOMMENDATION – Use product differentiation to de-commoditise your product and set it apart in a way that will drive sales and attract higher margins. Differentiate to drive profitability.
5/20 – REDUCE MARKETING COSTS BY DIFFERENTIATING
US$925 billion market capitalisation
Krispy Kreme has a market capitalisation of US$925 billion. Zara has a market capitalisation of 27.91 Euro. Rolls Royce has a market capitalisation of 614.96 billion Stirling. These are just three examples of highly successful businesses that have no advertising budget. They are also examples of businesses that are very effectively differentiated in a way that is market responsive and tangible.
Compare these businesses to Myer in Australia that has not made a commercial return for 10 years despite a well-known brand name and a multi-million dollar advertising budget, or Harvey Norman which is constantly discounting and leaning on suppliers to create a price advantage and spending a bomb ($152 million) on advertising because they really have nothing different to offer than Retravision and JB Hi FI, the second of which has grown to become the 7th largest electrical retailer in the world. You might then consider the massive advertising budgets of the supermarket chains (Woolworths $119 million) and banks ($109 million) – both industries where there is little or no effective differentiation.
The less differentiated a business or product, the more shouting it has to do to get noticed and stay top of mind. The less differentiated a product or business, the less natural attention or unpaid media relations they attract – because there is nothing special or different to notice or talk about. The less differentiated a product, the greater the requirement for discount or promotions designed to create a point of difference – albeit temporary. The absence of differentiation inevitably drives marketing costs up while effective differentiation either drives marketing costs down or provides a superior return in terms of volume and margin.
Effective product differentiation is the key to cost-effective marketing. What constitutes ‘effective’ product differentiation will be discussed in the pages that follow. Suffice to say here that it needs to be market-focused, tangible, and supported by branding. These factors combined will drive marketing costs down, sales up, margins up, and increase the overall return on investment to its potential. The antithesis of this is, of course, commoditisation – with commodities costing a bomb to promote and discounting an all too frequent requirement.
RECOMMENDATION – Use effective product differentiation as a strategy for reducing the cost of marketing and advertising, and in so doing, increase the ROI on marketing.
REQUIREMENTS FOR EFFECTIVE DIFFERENTIATION
There are many requirements for effective product differentiation. The most significant involves customer focus being tangible and supporting the brand. Other critical considerations include recognising the importance of perception, embracing sources of differentiation, and identifying the best factors for differentiation. These issues are discussed below.
6/20 – STOP LOOKING AT YOUR NAVEL AND START LOOKING AT YOUR CUSTOMER
84% of businesses report an increase in revenue.
The once profitable department store is suffering and appears to be on the verge of well-earned, extinction. There are many reasons for this, but few are more important than the poor customer experience they offer. Why would you visit a department store, search high and low for what they probably don’t have, and then get treated as a credit card courier when you can go to a speciality store – walk off the street, find what you want, and get informed personal service?
I wouldn’t, and don’t … and I am not alone.
Harrods exemplifies what a department store can be – offering a fantastic customer experience, supported by great customer service. This is the Harrods experience. It is a customer experience driven by what Harrods know is a need within the primary target market. Research shows that 84% of businesses focused on providing a customer-focused consumer experience also experience superior performance. Another study found that – 96% of customers say customer service is important in their choice of loyalty to a brand.
The needs, wants, and expectations of the primary target market should be the number one consideration in establishing an optimal value proposition, unique selling proposition, or strategic competitive advantage. Despite this, department store owners and managers spend their time looking at leases, supply channels, systems for reducing theft, and internal process delivering efficiency rather than spending their time understanding and addressing the needs, wants and expectations of their market. In short, they spend their time staring at their navels rather than their customers. Certainly, leases and the like are important – but they matter not at all if the offering is not consistent with customer needs, wants, and expectations.
Effective differentiation starts with identification of the primary target market, developing the best possible understanding of that market, and then determining how its needs, wants, and expectations can be met, if not exceeded, and addressed in a manner that sets the business apart from its competitors. Far too many businesses assume that the only thing customers are looking for is lower prices. While price is important, so is the product or service the customer is buying.
The best businesses are, invariably, those that really understand their customer and seek to differentiate on criteria that are most important to their customers.
Do the research to identify and understand your target market. Use the resulting information to establish a point of difference that directly addresses needs, wants and expectations.
7/20 – STOP BULLSHITTING AND DIFFERENTIATE TANGIBLY
37% of consumers trust business
A number of surveys conducted over the last two years have pointed to the declining trust in business and businesspeople. One study found that only 37% of consumers trust business. Further, another study found that only 47% of people trust advertising messages. In this environment, it makes no sense whatsoever for advertisers to make big, bold statements about how good a business or brand is without providing substantiation. Substantiation, in turn, requires that the point of difference be tangible – or measurable.
The ideal value proposition and unique selling proposition are both tangible and open to substantiation. The ideal value proposition and unique proposition are tangibly demonstrated in advertising.
While at the farm recently, and without knowing what had possessed me, I watched something ion commercial television. Consequently, I watched some of the advertising that is becoming increasingly dominant on commercial television. There are more and more inane advertisements in every break, and few seem to present the product in a way that will maximise sales or margins. One such advertisement for a home-builder promised a ‘better home’. Apparently, their unique selling proposition was that they build a ‘better home’. Having viewed the commercial twice, I found myself asking:
- What is a ‘better home’?
- What makes this builder’s homes better?
- Where is the proof that they are better?
With these questions in mind, I could not think of a single reason why I would believe the advertising message, so I didn’t. I suspect that few others did either, and the builder’s sales might confirm that this is the case. It would have been far better for the commercial, or a series of them, to note the features that make a home ‘better’ and then list the features of the builder’s product that are in alignment with these features. It would have been far better if the builder had highlighted tangible features that set their homes apart from that of its competitors.
The more tangible and demonstrable a unique selling proposition is, the better.
Having developed the best possible understanding of your target market, identify the features and benefits of your product, and make it tangibly superior to the competition. Demonstrate the difference.
8/20 – WITHOUT TRUST THERE IS NO USP OR SCA
25 – 34% of consumers say they trust most of the brands they buy
There is a declining level of trust in brands. This impacts both sales and margins. A 2019 study found that worldwide trust in brands ranged from as low as 25% in Germany to 34% globally and that only 45% of people would ever regain trust in a brand that had lost their trust, while 40% would stop buying the brand altogether.
The optimal value proposition (VP), unique selling proposition (USP), or strategic competitive advantage (SCA) is developed taking into account the needs, wants, and expectations of the primary target market. The optimal VP, USP, or SCA is tangible and able to be demonstrated and substantiated. The optimal VP, USP, or SCA is substantiated by the overall brand messaging. That brand messaging must embrace the VP, USP or SCA and then reinforce them in a way that builds trust.
Without the trust delivered by the brand, the claimed VP, USP or SCA has no credibility, and may not be embraced by the prospect or consumer in the course of the purchase process. The best source of trust is, of course, delivery – as promised. The most effective branding campaigns are built around a tangible, consumer-focused, and demonstrable value proposition or unique selling proposition. The brand also needs to communicate and confirm the VP or USP.
A great example of this is Apple. The USP is a ‘heartfelt connection with its customers’. Apple has built a brand that has helped it establish a worldwide community – a tribe – with which it has developed a close and responsive relationship. Indeed, it has developed this USP to the point where it is effectively a strategic competitive advantage reflected in all brand-related communication. Its products are viewed as customer-friendly, and its services are viewed as customer-centric. The business is geared to ensure it delivers on this promise, building trust in the process. Apple delivers as promised.
This is perhaps why Apple is one of the worlds most trusted brands. It is customer focused. Its USP is tangible and can be readily demonstrated, it delivers on its promise, and all brand messaging is drawn from and fully supports a strategic competitive advantage that few if any other businesses have been able to replicate.
Build your brand around your unique selling proposition and consistently support that USP with brand messaging. Use the messaging together with delivery ‘as promised’ to establish trust.
9/20 – DIFFERENTIATION INVOLVES CUSTOMERS AND COMPETITORS
8 out of 10 entrepreneurs fail within the first 18 months
According to Bloomberg, 8 out of 10 of new businesses fail within 18 months. According to Forbes, the second most common reason for failure is – ‘no real differentiation in the market’. The third most common reason is – ‘failure to communicate value propositions in clear, concise and compelling fashion’. Differentiation from competitors is important for all businesses.
The starting point for effective product differentiation is the customer – identifying the needs, wants, and expectations of the target market so that the VP, USP or SCA can directly address them. However, differentiation is not all about the customer. It also involves the competitor that the product is to be differentiated from. I agree with the Jeff Bezos who said that – ‘If you’re competitor-focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering’. Differentiation is all about spelling out, as tangibly as possible, ‘why your target market should buy your product ahead of another’.
When I talk to a new client, the first two questions I ask them are:
- Who are your biggest competitors?
- Why would I buy your product ahead of theirs?
To my enduring concern, some still answer the first question with – ‘I don’t have any competitors’. This response is built around the notion that their product is in a category all of its own. While in very rare cases this may be true, generally, it is not. All too often, business proprietors think their products are unique when they are not. I then spend the next hour explaining to them how they are not unique and that even if they were – there is still competition. That is, the customer always has alternative ways to spend their money. Further, the competition might be in another category. The truth is, most businesses have competitors.
Interestingly, the second question is the one that throws most people the most. Few can provide a value proposition, unique selling proposition or strategic competitive advantage that is customer-focused, tangible, and supported by their brand. Still fewer can provide an answer that reflects an understanding of the competition’s offering. Further, it is very rare that the USP is unique, tangible, demonstrable, or supported by branding. It is rarer still for the USP to be demonstrated.
This makes no sense to me at all. If the owner or manager of the business cannot tell me how their product will address my needs better than the competitor’s – how on earth will I ever find out? If the business is not clear on what differentiates it from its competitors – neither will the target audience. Effective differentiation is the art of demonstrating to the primary target audience exactly why and how a product is better able to address their needs, wants, and expectations than the competitive product.
Understand your competitors better than they understand themselves and use that understanding along with the understanding of your customer to differentiate your product in a meaningful way
10/20 – DISTINGUISH BETWEEN HYGIENE AND MOTIVATION
2 levels of differentiation matter
In his ‘Two Factor’ theory, Frederick Herzberg wrote about two levels of potential differentiators for a job and job satisfaction that are equally relevant to products and businesses. These factors are hygiene factors and motivational factors. Hygiene factors will not encourage employees to work harder or customers to buy, but may cause them to become unmotivated. Motivational factors, on the other hand, will encourage employees to work harder and customers to buy.
In the purchasing environment, hygiene factors are the elements that must be present for a potential consumer to consider a product. However, they may not motivate a purchase. These might also be called ‘mandatories’. For a consumer to consider buying a toaster, it must have the electric fitting that is required, and it must be able to take a certain number of slices of toast. If it does not have these two elements – it will not even be considered. If it does have these two features, it still may not be considered. A hygiene factor simply determines whether a product is on the list or not.
Motivational factors, on the other hand, are those factors could potentially motivate the target market to make a purchase. Given that the hygiene factors are all addressed, the design and colour of a toaster might set the product apart from competitive products, and may well motivate a purchase. It is the motivational factors that will ultimately drive purchase and result in customer satisfaction. Motivational factors are, in essence, the added value that might make a product more attractive to the market.
It is important that every product satisfies consumer expectations in terms of hygiene factors. However, the presence of these factors is unlikely to compel a purchase – or be an effective point of differentiation or an ideal USP. The hygiene factors need to be a ‘given’ with the value proposition, unique selling proposition or strategic competitive advantage based on key motivational factors. Delivering on motivational factors will drive repeat purchase and referral.
Clearly, what constitutes hygiene and motivational factors will vary from product to product and market to market. This highlights the importance of understanding the market well. Far too many businesses try to differentiate themselves on hygiene factors and fail to appreciate that it is motivational factors that drive purchase and satisfaction.
While ensuring all hygiene factors are addressed, it is essential to differentiate your product or business on the basis of one or more motivational factors – if differentiation is to be effective
11/20 – GET REAL – THEN LOOK THE PART
87% of profits from 18% of sales
In 2019 Apple secured just 18% of world smartphone sales, down from around 30% only two years earlier. At the same time, however, Apple secured 87% of all of the profits arising from the sales of iPhones worldwide in 2019. There are many reasons for this, including a lower cost of production and a premium pricing model. Another reason is that Apple gets the reality right and then gets the perception right.
In most cases, cosmetic changes such as a new name, visual branding, strapline, shop design or even web design on their own will pay very small dividends. Consumers in 2020 are far too educated and experienced to be seduced by cosmetic changes or to see a product as more attractive as a result. It is, however, another matter entirely when cosmetic changes or factors support real or substantive changes that deliver tangible value to the consumer.
Substantive changes and factors such as product features, benefits, functionality, ease of use, accessibility, or lower price are always more important. They will usually have more impact than cosmetic changes and factors. That said, substantive changes tend to be more effective when supported by cosmetic changes or factors that have an impact on perception.
Consider, for example, the Apple stores. Given the proportion of Apple sales that are corporate and/or online, Apple could have been forgiven, as have Samsung and many others, for not having retail outlets. But Apple chose to develop retail outlets – not just as an avenue for sales, and service, but for influencing the perceptions of its primary target market. Apple stores make a statement about Apple and reinforce the substantive elements of the Apple USP and brand. And haven’t Apple done it well? Compare the stunning Apple stores with the mediocre Telstra stores. To me, Telstra stores look like a cheap, poorly thought through, copy of Apple stores.
It is important to have a value proposition or unique selling proposition that delivers tangible benefits to the primary target market and targets key motivational factors. It is also important, however, to address perception. Ensure that the visual, service and every other cosmetic aspect of your business reinforce and amplify the VP/USP and support the branding.
Develop a value proposition or unique selling proposition built on substance, and ensure that the cosmetic aspects of the business, including visual branding, support the substance.
12/20 – DIFFERENTIATE THE PRODUCT OR THE EXPERIENCE
1 million store visits a year
I would not go into an IKEA store to save my life or yours. There is nothing about the IKEA experience that I find tolerable, let alone enjoyable. That said, I know I am in the minority. I also know I am not a member of the IKEA target market. I know this because nearly 1 million people visit Ikea stores annually, and most of them love the experience. Given its sales of nearly 40 billion Euros per annum, Ikea clearly understands that its USP is more than the products it sells. It is also the environment in which they sell those products and the overall customer experience.
Compare an IKEA store to that of my favourite whipping horse – Myer. While I might not like either shopping experience, I can certainly appreciate the work that has gone into creating the shopping experience customers enjoy at IKEA. By contrast, Myer seems to have complete ignorance of the customer. IKEA clearly understands that while its product should be differentiated in a way that appeals to the needs, wants, and expectations of its customers, so should the experience of shopping at IKEA. As a small example of this, research suggests that many customers visit IKEA just for the meatballs in the dining area – and then end up touring the store.
Bunnings is another example of a business that understands the importance of differentiating the shopping experience as well as the product offering. In addition to low prices and exclusive products, Bunnings offers a shopping experience and expert advice that appeals to its primary target market. The environment in Bunnings is such that while I tend to run in and run out, many customers spend a considerable time wandering and browsing. More often than not, this leads to additional and impulse sales. There is no store in Australia like Bunnings, and this represents a competitive advantage for the business.
Of course, the experience in all places of business, not just retail, can be enhanced to the point where it represents a unique selling proposition or even a competitive advantage. The hospitality industry is an obvious case in point. However, this is equally so in the services sector. Consider the customer experience when visiting your general practitioner. How long are you kept waiting? What is the customer experience at your accountant’s office? How helpful or accommodating is the receptionist? When you visit your architect, are you impressed by the funky waiting area? And the electrician who visits your home, was she on time and wearing a clean outfit? All these factors impact on the perception of the business and should fully support the value proposition or unique selling proposition.
In addition to differentiating your products, differentiate the customer experience. Make it one that people want to experience again and will talk about with their friends and relatives.
13/20 – EMBRACE THE POWER OF MISSION AND VALUES
63% prefer to buy from a purpose-driven brand
Ideally, product or brand differentiation should be tangible. However, they need not be related to the product per se or even to the customer experience. Given the right circumstances, differentiation can be based on the values of the business. This point is made well by Roy Spence in his book – ‘IT IS NOT WHAT YOU SELL – ITS WHAT YOU STAND FOR’ published in 2009. Indeed, the title says it all.
A point of difference, value proposition, unique selling proposition or strategic competitive advantage can be built around the values of the brand and the business that owns the brand. Research undertaken in 2018 found that 63% of consumers prefer to buy from businesses they believe are driven by a purpose greater than money. Further, the research found that 62% of consumers want brands and the businesses that own them to take a stand on issues (like climate change, for example).
Research suggests that consumers are also attracted to brands that are committed to:
- using good quality ingredients (76%)
- treating employees well (65%)
- reducing plastics and improving the environment (62%)
In 2020 the values of a brand or business are extremely important to consumers. Values can be used as part of a unique selling proposition or strategic competitive advantage. People want to buy from a good corporate citizen and businesses that share their values. Research suggests that many are prepared to pay for the privilege. It is, therefore, more than plausible to build a point of difference around such issues. Businesses that have tried to do this include:
- Google – with its purpose of – ‘Do No Evil’ – currently rated highest in the world on CSR
- Netflix – demonstrating its CSR credentials through 52 weeks paid parental leave etc.
- The Body Shop – spruiking its commitment to animal-free testing of cosmetics
Google and Netflix do not promote good corporate citizenship as their primary point of difference. However, they do use it to support their other points of difference in highly competitive markets. The Body Shop, on the other hand, has virtually built its brand around being a good corporate citizen and espouses values identical to those of its primary target market (especially regarding animal testing). The Body Shop is an example of a brand that has used ‘purpose’ as a unique selling proposition or strategic competitive advantage.
Consider developing a strategic competitive advantage built around having a higher purpose than simply making money and have values consistent with those of your primary target market.
14/20 – DIFFERENTIATE BY AVOIDING MEDIOCRITY (price and convenience)
US$568.3 million and growing
Zappos is the world’s biggest shoe store. It is online, of course, and was established in 1999. By 2019 sales had grown to US$568.3 million and it ranked 171 worldwide among retailers. A wholly-owned subsidiary of Amazon, Zappos is led by Tony Hsieh – the CEO since 1999. It is worth considering some insights from Mr Hsieh:
- ‘Customer service shouldn’t be a department; it should be the entire company.’
- ‘Zappos is a customer service company that just happens to sell shoes.’
Tony Hsieh is obsessed with customer service. His primary focus at Zappos is to create a culture that will deliver the best customer service of any online retailer in the world. The results are legendary. The success of Zappos is built on customer service, and Hsieh will not tolerate any half measures. Zappos will be the best and nothing less.
This success story highlights the power of high standards.
I recently worked with a client selling an FMCG product in high-quality packaging for a medium/average price. The product was available in supermarkets along with 4 or 5 competitive products, some of which were a lot cheaper and some of which were much more expensive. Research indicated that both the cheaper and the more expensive products sold better than my client’s product. It seems that people viewed the more expensive products as high quality, the cheap products as great value, and the medium-priced product as neither one nor the other.
This example highlights the dangers of mediocrity.
Marketing guru Seth Godin once said, ‘nobody recommends a mediocre restaurant’. You might go there occasionally if it is close or cheap, but you will not recommend it. The fact is, we only recommend businesses, brands, or products that are outstanding in some way. Despite this, so many businesses, products and brands are of mediocre quality, offer mediocre service, are available for a mediocre price and offer a mediocre level of convenience. By definition, most businesses are mediocre, which is why they need to discount heavily, promote aggressively and work hard to stand out and make any money.
Rising above mediocrity in one or more of these factors can represent a unique selling proposition. It certainly has for the likes of Zappos. If you are going to be cheap – be CHEAP. If you are going to offer service – offer EXCELLENT service and if you are going to offer convenience – be SECOND TO NONE.
Take a moment to compile a list of businesses you know of that are not mediocre. I bet it is a short list. Now develop and implement a strategy to rise above all of them and your competitors.
15/20 – BORROW FROM THE PAST AND TELL A STORY
US$125.84 billion and growing
Bill Gates and Paul Allen founded Microsoft in 1975. Since then, it has grown to become a global giant with sales of US$125.86 billion and a net profit of US$39.24 billion in 2019. It is, by any measure, an amazing story, but do you know how this story began? Many people think they do. I have heard several versions of the story myself, some of which are described in detail in books about Microsoft and Bill Gates. There are also many stories about the beginning of Apple, Google, Amazon and other great businesses. The fact is, people love stories. How many people have seen the documentary on the history of McDonalds – millions?
Borrowing from the history of a business will not in itself represent a unique selling proposition. Still, it can most certainly support a unique selling proposition. Consider, for example, Harrods – a retailer with a long history it uses to create a perception of prestige and distinction. Consider, for example, the story of Starbucks. Inspired by a trip to Italy, Howard Schultz developed the business from a regional operation into a highly successful international purveyor of quality coffee.
There are many other examples, including Richard Branson and Virgin, Ingvar Kamprad and IKEA, and Jack Welch and GE. All of these stories have helped to make these businesses distinctive and more appealing to the primary target market. Each of these examples demonstrates how history can provide powerful differentiation and support a unique selling proposition. These histories create interest, fascination and engagement while demonstrating how the business had developed into the market leader it is today.
Certainly, not every business has a history as rich as some of those cited here, assuming that those cited here are accurate. Still, every business has a story, and many are in a position to craft a story that differentiates them. This is true of even the smallest business. I cite my own as one example. I started in marketing in 1980, with a psychology background. That background supported a profound interest in human behaviour and how that behaviour can be managed cost-effectively to achieve commercial and social outcomes. This process has confirmed for me that reliance on advertising to manage consumer behaviour is both lazy and stupid.
There is more, but I suspect you get the point.
History and the story can be particularly powerful in the marketing of high-quality food (Harvey Beef), wine (Grange), and fashion (Levis). Research demonstrates the growing importance of provenance. An Australian survey found that 19% of consumers place provenance as the most top of mind factor in a food service environment. In this setting, history and a story incorporating provenance can be a very powerful unique selling proposition.
Look back at the history of your business and the evolution of your products. Consider crafting a story that differentiates your business and supports your unique selling proposition.
16/20 – EMBRACE CAPABILITY AND PERSONALITY (expertise and personality/mascots)
US$10 billion and US$7.5 billion respectively
McKinsey and company boast revenues overUS$10 billion (an average of US$476,000 per employee, and Boston Consulting Group boasts revenues in above US$7.5 billion (an average of US$405,000 per employee). These firms are considered the leading management consultancies in the world. They have built their brands through the provision of world-class expertise that delivers the results their clients want. McKinsey and BCG are ‘the experts who employ the experts’. They are examples businesses that have built a value proposition around expertise.
This opportunity is not, however, reserved for management consultants. It is also a potential differentiator for dentists, medical practitioners, architects, engineers, mechanics, carpenters and a whole raft of other professions and trades. For expertise to be effective as a differentiator or the substance behind a unique selling proposition, it is important to ensure:
- The expertise the business is a leader in is specified as clearly as possible
- The target audience knows enough to appreciate the difference claimed
- The expertise focused on is valued highly by the primary target market
Without these three factors in place, effective differentiation on expertise is near impossible. With them, it can be very effective.
Businesses such as Virgin Group and Levi Straus differentiate on the basis of personality (among other things). Virgin positions itself as youthful, dynamic, and contemporary while Levi’s positions itself as casual, authentic, young, and free. Both of these businesses have been highly successful in differentiating themselves from their competitors based on personality. Several smaller businesses such as coffee shops, restaurants and others in the food sector also place a high priority of differentiating themselves based on personality.
For differentiation on the basis of personality to be effective:
- The personality trait needs to be important to the market
- There must be the capacity to demonstrate the personality of the business
- There must be the potential for personality to differ significantly
I would argue that personality can be a powerful and underutilised differentiating factor.
Consider differentiating your business or brand based on expertise, personality, or both. Develop and communicate superior expertise and a personality that suits market expectations.
17/20 – DIFFERENTIATE THROUGH R&D (product)
US$91.6 Billion in South Korea and US$23.3 billion in Australia
South Korea spends US$91.6 billion (4.29% of GDP) on research and development. By contrast, Australia spends just US$23 billion (2.12% of GDP) on research and development. Is it any wonder that South Korea leads the world in the development of innovative products, and the once inventive Australia is rapidly becoming a laggard in this regard? While Australia was once known for its innovative products, such as the Hills Hoist, Victor lawn mower, Jindalee Radar and Wi-Fi. However, recent innovations have been fewer and farther between. This reputation is in decline and is possibly a reflection of low investment in R&D.
Perhaps the most effective means of differentiating a product is through innovation driven by a commitment to research and development. Some of the greatest businesses on the planet were built on such innovation, including Apple (iPod, iPhone and iTunes), Google (superior search algorithms), Dyson (vacuum cleaners, heaters and coolers), Microsoft (DOS), SpaceX (launching satellites for 20% of the previous cost and returnable rockets), and many others like them. In Australia, there have been Cochlear implants, Fiona Wood (spray-on skin) and David Warren (black box recorder).
These are examples of products that can be differentiated with substance – in that they better address the needs, wants, and expectations of consumers – often in ways not even thought of before. Very often, these innovations have been highly disruptive (killing off existing products). In other cases, they have been so innovative that they have created a new category, thereby avoiding competition and boosting profitability for some time.
Innovation creates a true strategic competitive advantage that delivers a sustainable unique selling proposition, which, in turn, boosts sales and significantly reduces the cost of marketing (particularly advertising). This is arguably the best form of differentiation, as it is the most tangible and sustainable. It can be expensive, but it can also be rewarding. More Australians and, indeed, more Western Australian businesses need to consider it and placing a higher priority on:
- understanding the needs, wants and expectations of consumers
- understanding the problems that consumers want to have solved
- devoting resources to finding cost-effective solutions to those problems
It need not be expensive. There are some highly economical approaches to research and development.
Consider using research and development to innovate. In doing so, tangibly differentiate your products to drive margins and position your business as an innovator to watch.
CREATING THAT POINT OF DIFFERENCE
We have established the importance of differentiation and its potential foundations. We will now consider the processes that might help to differentiate a product or organisation.
18/20 – IDENTIFY AN EFFECTIVE VALUE PROPOSITION
50% increase in revenue after identifying the optimal value proposition
According to e-commerce Manager, Jeff Hoogerhyde, a value proposition developed for 3M helped to increase revenues by 50%. This staggering result followed the development of the value proposition over four stages, as follows:
- Review of the competitive landscape
- Target market analysis
- Identification of product strengths
- Identification of the intersection
- Crafting of the value proposition
It is important to understand the competitive environment and understand your competitors by identifying their relative strengths and weaknesses – including their value propositions. It is essential to understand the needs and wants of the primary target market – identifying those that are most important and those least catered for. Identify the strengths of your product or brand, specifically the strengths that set it apart from the competition. The next step involves identifying the intersection between the strengths of your product and the needs and wants of the market (especially those not well catered for by the competition). That intersection can then be used to craft a value proposition or unique selling proposition.
Ideally, your value proposition or unique selling proposition will be:
- 100% targeted at unmet needs and wants
- 100% tangible and demonstrable
- 100% unique to your product or brand
- 100% sustainable over the medium term
Of course, 100% is a big call on all three of these criteria. However, the objective should be to get as close to 100% as possible. The closer you get to 100%, the more effective the VP or USP will be in driving effective differentiation and, therefore, profitability.
The final VP or USP should offer a compelling answer to the question – “why should I buy your product ahead of that of your competitor”?
Identify the intersection of the target market needs with the strengths of your product to identify a sustainable VP or USP. Ideally, this will be one that is not being addressed by your competitors.
19/20 – DEVELOP A STRATEGIC COMPETITIVE ADVANTAGE
6 sources of a strategic competitive advantage
Developing a sustainable strategic competitive advantage is not easy. However, it can prove very helpful in terms of sustainable differentiation a product or business. Indeed, a strategic competitive advantage can create a gulf between a product and the competition that may never be bridged.
Michael Porter of Harvard University coined the term ‘strategic competitive advantage’. The essential difference between a value proposition and a strategic competitive advantage is that the latter is much more than cosmetic. It involves creating a tangible capability that gives the business a competitive advantage, that is, a sustainable point of difference that is built into the business. More than the product being different – the business that makes the product is different, and it is this difference that delivers sustainable added value.
Michael Porter developed a relatively complex model for establishing a strategic competitive advantage. Without going into the complexities of the model, there are 6 key factors around which a strategic competitive advantage can be built:
- Intellectual property
To consistently develop products that deliver added value and sustainable differentiation, a business can: (a) invest in the quality of its people to ensure they are second to none (Apple – in the early days); (b) develop a culture that will consistently deliver the standards and innovation required (Zappos); (c) establish processes that are difficult to replicate and offer superior value (SpaceX); (d) involve intellectual property that no one else has (Google); (e) have superior access to resources, including financial resources (Amazon); (f) have superior technology and a superior capacity to use it (Oracle); and, indeed, any combination of these factors.
Developing a sustainable strategic competitive advantage involves structural changes in the business. The changes will deliver not just a superior product, but, a superior capacity to consistently deliver the superior product.
Consider the 6 key factors that can be used to establish a strategic competitive advantage and ensure that your business can consistently and sustainably differentiate its products.
20/20 – CREATE A CULTURE THAT DIFFERENTIATES
300,000 copies a year sold
World-renowned management consultant and academic Peter Drucker once noted that ‘culture eats strategy for lunch’. Drucker is, without doubt, 100% correct. When you have a strategy – you have a strategy, but when you have a culture – you can develop new strategies and have the capacity to implement them. This point is equally relevant to differentiation. When you have the optimal culture, you can differentiate and implement a strategic competitive advantage that can continue to differentiate, as and when require.
Culture is one of the 6 key factors upon which a strategic competitive advantage can be built. To be an effective source of differentiation, however, culture must always be considered in conjunction with your people. You can only create an optimal culture if you have the best people. As Jim Collins reminds us in ‘Good to Great’, it is not possible to develop a great business without a great culture, and it is not possible to create a great culture without great people. Good to Great is a fantastic read, as evidenced by its 300,000 sales per year.
The best way to ensure sustainable differentiation is to create a strategic competitive advantage. The best foundation for a strategic competitive advantage is the culture (employing the best people) that can develop the best processes, acquire superior intellectual property, attract the required resources and technology – and, ultimately, develop and maintain the optimal point of difference – with the capacity to modify as, and when, possible.
The steps to building a great culture that can become the strategic competitive advantage that can consistently deliver products that are differentiated by the value they add, include:
- Identifying the target audience
- Identifying the priorities of the target audience
- Defining a brand that addresses those priorities
- Defining a culture than can deliver the brand
- Employing the people that fit the culture
- Employing the training and resources needed
- Providing feedback
- Providing incentives
- Monitoring market reaction
- Monitoring staff performance
Perhaps nothing is more fundamental to product or brand differentiation than culture. As it happens, culture is also fundamental to branding and marketing in general. In many respect, culture is the key, not just to effective differentiation, but also to effective marketing.
Find the right people and develop a culture that can become your strategic competitive advantage. In so doing, develop the capacity to differentiate your business and products for the long term.
In marketing, few things are more important than product or brand differentiation. Differentiation is the key to minimizing marketing costs and maximising sales and margins.
Differentiation by way of a value proposition or unique selling proposition can very be effective, at least in the short-term. Differentiating by way of a strategic competitive advantage will deliver a more profound capacity to differentiate a business and its products now and into the future.
VP and USP can be built on various foundations. However, there are 6 key factors upon which an SCA can be built. The most powerful is a culture that appreciates the importance of differentiation and has the skills to deliver it consistently – both in planning and in behaviour.