A differentiation strategy builds dominance in your market. One of the fun things about working with so many different companies is the perspective you gain on different industries. Often times, however, an industry is highly fragmented with no clear dominant player or no clear dominant specialty player. This is worth closer examination, since a strategic framework for building dominance is useful for many businesses.
Differentiation
First, let’s consider what brings dominance. Dominating a market is always the result of having a clear advantage in one of the top things that drive customer preference. In other words, dominant players always have a distinctively strong position in one or more of the needs and preferences customers show in their market.
“If no one is ahead it means no one is standing out”
So, what is happening when no one is dominating the market (or the specialty end of the market)? In the words of my friend, entrepreneurship author Dawnna St. Louis, “If no one is ahead it means no one is standing out”. In every case I’ve seen, it happens because all the contenders are focusing equal weight on the same three or four customer preferences. In those situations, it’s hard to win, because all the players have similar resources and similar positions. There is no differentiation. This, of course, leads to a “blah” reaction from customers who consider the competitors to be roughly the same. In a market where there is already a commodity winner, sameness enhances the dominance of commodity thinking in the market.
If you are pursuing a differentiation strategy, the perception of value requires clear superiority
If everyone is about the same, this is a challenge. Most successful breakout strategies I’ve worked with involve finding a different way to be better. If the main preferences are in the product, for example, you may succeed by finding superiority in service. If clear superiority cannot be established, you can find scenarios, or emphasize alternative evaluations based on brand or emotion.
Here is why this is important to you: you can command a premium price to the extent that customers perceive premium value in your goods or services. Where there is no perception of superiority, you face the risk of commoditization. If you are the lead commodity competitor, with actually lower costs, that’s fine. If you aren’t you can only generate profit to the extent that some customers perceive and prefer your superiority. And this means you MUST be different to make money.
Differentiation is so important it can work even if the difference has little to do with primary customer preferences
For example, painting an industrial machine component orange can lead to higher sales and profits. Furthermore, licensing a brand for a credit card can do the same thing. These differences may seem minor, but they often stand for value in the minds of some customers.
What do you do to make your offerings different? Do you find differentiation strategy challenging? Attend our next seminar on Simplified Strategic Planning to learn how to further differentiate your business and enhance your profitability.
To learn How to Avoid Competitive Pricing with Better Market Segmentation, click here.
Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc. He can be reached at rbradford@cssp.com.
Author
Robert W. Bradford
© Copyright 2018 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission