Is Differentiation Dead? You Can Win Without It
All companies wrestle with the numbing sameness of commodities.
Everyone tries to differentiate their products and services from those of the competition.
They’ve learned differentiation is a necessary part of business strategy to outperform the competition.
But in industry after industry, products and services quickly blur before the eyes of the average buyer because there is no real differentiation.
“A commodity is simply a product waiting to be differentiated,” opined Professor Philip Kotler, a world-class thinker on marketing. Easier said than done.
We witness many industries where companies produce near-identical offerings. And among those companies, we often see quite different levels of profitability. Why is this?
As part of my consulting practice, I am asked to provide market assessments or conduct SWOT analyses aimed at helping the client develop a go-to-market strategy different from their competition, and do it in a compelling way.
And when I do the competitive analysis, I find the competition doing more or less the same thing, in the same way, with the same prospects. They, too, are also challenged with how to differentiate.
So is differentiation dead as a strategy?
Pricing as a Strategy
In a Harvard Business Review article written a few years ago, entitled “You Can Win Without Differentiation,” Freek Vermeulen discusses the question of differentiation. Vermeulen argues that when companies are unable to differentiate their offerings effectively, they’re left with “fierce price competition, which brings everyone’s margins to zero.”
And the consumer is the ultimate winner of price wars; it’s a zero-sum game.
As we learned from Michael Porter in his book Competitive Advantage – Creating and Sustaining Superior Performance, one generic strategy is low-cost leadership or low-cost focus. Cost advantage, however, is usually shaped by firm’s size and scale.
Differentiation as a Strategy
The second generic strategy Porter lays out is differentiation. A company works on a unique positioning in its industry as defined by, perceived important by, and valued by buyers. As the company meets customer/client needs, it is rewarded for its distinctiveness with premium price─only if it’s truly unique at something or perceived as unique by the buyer.
Differentiation applies the product itself, the delivery system, the marketing approach, and a broad range of other measurable factors. But there’s another way to think about this.
Rather than use price, product companies can differentiate on quality, delivery terms, service levels, maybe even warranty coverage. In this case, the buyer can make a reasonable comparison.
However, if you sell services, it’s not as straightforward. Vermeulen uses the example of management consulting firms like McKinsey and Accenture, where there is no simple or obvious way to articulate and differentiate capabilities, or to make a succinct, credible and reliable connection between capabilities and business outcome.
The consulting firm hands you a management report or a slide deck that postulates a series of strategies and forecasted outcomes. But you have no way of knowing if they will bring you value going forward.
Focus as a Strategy
Michael Porter suggests a third generic, differentiation strategy: Focus. This strategy is quite different from others because it relies on choosing a narrow competitive scope within an industry.
You select a segment or group of industry segments, then tailor your strategy to serve those segments or group of segments only. By optimizing your target strategy, your company can build a sustainable competitive advantage.
For example, look into my eBook on how to Secure Executive Appointments under Favorable Conditions. It demonstrates how segmenting the market can help strengthen your messaging and, in turn, open up more doors in your prospecting efforts.
But even with this targeted strategy, winning the sale still comes back to the sales process.
How do you approach an organization and what value do you bring to them?
Value as a Strategy
Let’s say you try to differentiate on value. Have you identified how the buyer defines value? If not, you could miss the mark altogether. Potential buyers rely on many ways to drive their decisions, especially when they face uncertainty. As Vermeulen points out, the seller’s brand, status in the industry, social network ties and prior relationships all weigh in the decision to buy.
Once the buyer switches from assessing and comparing features to pricing to differentiation, she turns to the brand’s credibility and trustworthiness.
Here is where I see many companies struggle, especially software, financial services, and professional services providers which, arguably are at their heart commodity businesses. It’s painful for companies to make the transition from providing a general set of enterprise IT tools and services, wanting to ride a wave of new technologies such as cloud computing, big data, and mobility, then have to apply them to task-specific functions in vertical industries, and retain their value propositions.
I think one of the most undervalued value-drivers in B2B selling is your sales process and who’s implementing it. Salespeople can deliver value at every juncture in the buyer’s journey, and to all buying influencers along the way, by uncovering the issue the prospect doesn’t see, as the chart below reinforces.
It is critical to see what others overlook.
Sales Experience as a Strategy
The Corporate Executive Board reveals in a recent study that 53 percent of 5,000 buyers say it is the sales experience─not the product, service or solution or even the organization─driving customer loyalty. Asked why they chose one supplier over another, buyers attributed the positive sales experience to the salesperson [sales process] who the buyers said:
Offered unique, valuable market perspectives
Helped me navigate alternatives
Provided ongoing advice or consultation
Helped me avoid potential land mines
Educated me on new issues and outcomes
Found the supplier easy to buy from
Supported across buyer’s organization
To answer our title question, Is Differentiation Dead?
No, but it may need a lung transplant. You, on the other hand, can win without it.
Because today’s complex B2B buyer’s journey presents many authentic ways to win the sale, without competitive differentiation. In all likelihood, your prospect doesn’t care how you’re different as much as you think he does. To sum up what all this means:
Your prospect wants real value.
That leads to a positive sales experience.
Which can develop into a trusted relationship.
See you on the upside,
For more information, go to www.pleinairestrategies.com
Or call William L. MacDonald in San Diego at PleinAire Strategies LLC at 760.340.4277 or 213.598.4700