How to Differentiate
We all know that successful differentiation is the key to higher profits. Unless you offer something that a competitor doesn’t offer, you will almost always get sucked into a game of “who can charge the lowest price”. Unfortunately a lot of competitors know this, and are trying to differentiate in exactly the same way you are. The predictable result is that you will all spend a lot of time, money and effort – and end up in the same place. Your competitors are also spending on having better delivery, higher quality and better technology. What can you do?
The simplest – and often most successful – approach is to look at the system in which your business operates, and work around it.
For example, if you are competing for retail space as a toy manufacturer, consider working around the entire paradigm by selling directly to consumers. Alternatively, set up your own retail operations. I’ve seen companies succeed at this by creating franchise retailing or direct marketing operations. In some markets it can be incredibly lucrative. A good example is Lego. They sell through toy stores and other channels, and have their own stores in key markets.
Changing the game by offering something that seems impossible in the current system may allow you to offer irresistible advantages.
Ride-share services like Lyft, Grab and Uber did this by creating the ability to give rides as a gig rather than a job. The advantages are huge for drivers, and the convenience offered to the riders is hard to ignore.
So, working around the system can be super profitable for you. How do you start down that path? Here are a few starting questions:
How do we – and our competitors – reach customers today?
How you reach customers, and get them to decide to buy from you, is one of the key places where almost every commercial system can and will constantly change because of technology. If you are meeting customers face to face, via advertising or through your distribution channel, there are countless ways your business model could change to create a new system.
What indirect competition seems stronger because of changes in our market?
Indirect competition is often a clue about what customers really want. The retail payment processor Square, for example, faced indirect and then direct competition from Paypal. Paypal built its success on accepting online payments but then moved into low-volume credit card payment processing for retail. One of Square’s responses was to create Cash, an app that bears some similarity to Paypal. Cash, however is designed specifically to make cashless offline transactions quick and convenient. By designing a system that was similar, but designed to be faster, Cash has made strong inroads in that space. Cash has strengthened the Square retail presence, as well.
In the top 5 customer preferences in our market, are there any that cannot be improved within the current system?
Sometimes the existing system ends up being as optimized as it can be for key elements. For example, in the toy market mentioned above, Toys R Us was dominant and larger than any of their competitors. Toys R Us tuned their distribution network for efficiency and low cost. Their market, however, is characterized by seasonality and fickle consumer preferences. Walmart, tuned their distribution similarly. This was great for cost-conscious toy shoppers, but awful for the specialty customers in that market. The specialty customers angled towards boutique mom and pop retailers in search of higher quality toys that didn’t turn over well enough to survive in the cost-conscious mass retail markets. We all know what happened next – the toy retail giant lost much of its volume and efficiency to Amazon and other online retailers. Amazon uses an entirely different system to offer both large selections and low prices. This is not the last market to fundamentally change in this way, even though you would not have guessed it would happen ten years ago.
What does our value stream and distribution network look like?
The value stream – the connected chain of businesses that create and deliver goods and services to end users – is a cornucopia of disruption possibilities. Some companies, like carpet sales and carpet installers, are traditionally separate in the USA because of legal and insurance issues. In many cases, though, we have to ask why this separation exists. Is there a better system for getting the end product or the end result for the final customer? If distributors only add value because of asymmetry of information, for example, technology offers us many ways we can bypass that asymmetry, and recapture that value for ourselves and our customers. If you are a distributor – you must pay attention to the value that you add, for it is literally your lifeblood.
Ask some of these questions about your own business and your own industry – the answers will surely stimulate some good strategic thinking. If you’d like our expert help in asking – and answering – these questions, contact me at rbradford@cssp.com. Consider holding a one-day workshop on Simplified Strategic Planning.
To learn about Profitable Differentiation Value, click here.
Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc. He can be reached at rbradford@cssp.com.
M. Dana Baldwin is Senior Strategist with Center for Simplified Strategic Planning, Inc. He can be reached by email at: baldwin@cssp.com
Co-Author, M. Dana Baldwin
Co-Author, Robert Bradford