Why differentiation matters

product-differentiation

Potentially we have seen the biggest political landscape change in 2016, most recently with the news that Trump has been voted in as US president. This follows closely in the wake of Brexit and there is no doubt that this is the end, I am sure there are many more twists and turns to come. We are in an unprecedented period of accelerated global change which leaves the business community in limbo with a strong feeling of uncertainty.

Companies are in a challenging period, as the Chinese say: ‘We live in interesting times’ – seizing competitive advantage has never been so important for any size of company. With so much change it is difficult to ascertain what this purported change will mean for business, however, irrespective of the national and cross border challenges, it is important that entrepreneurial drive, spirit is maintained because SME’s who are driven for success will be trend setters that find new and unexpected opportunities from this geo political unsettlement.

It is this very flux that creates opportunity. Change favours the strategic, the agile and those who are prepared to shrug off the status quo, to adapt to change and potentially disrupt their traditional business model to turn adversity into success.

Predicting the future and identifying trends becomes critical to achieving competitive advantage and success. Leaders need to think strategically, creatively and most importantly, quickly. Organic growth is not the only solution; indeed, strategic partnership, joint collaboration and M&A moves centre stage in these disruptive times. Seeking efficiencies is no longer enough, they need to understand, predict and respond agilely to trends and underlying movements to stay ahead of dynamic market flow and change. For businesses to thrive, this must become second nature, business owners have to be in tune with the economic and business jungle drum, it is then they will be able to act with the speed required to create competitive advantage.

Product differentiation is essential too. It allows the seller to contrast its own product with competing products in the market and emphasize the unique aspects that make its product superior. When utilised successfully, sellers gain a competitive advantage by demonstrating why their products are unique.

Standing Out
A company can set itself apart from the competition in two ways: through cost leadership or through product differentiation. Cost leadership emphasises saving money and appeals to those who are on a budget. Product differentiation focuses on providing quality.

Product Differentiation Strategy
A good product differentiation strategy may gain brand loyalty, which is paramount to any successful business. This strategy focuses on a buyer’s perception of value. As long as the seller continues to provide high quality, the customer base will remain strong. Today’s financial climate contains businesses in an intensely competitive market. If a product does not have consistently high quality, consumers will turn to competitors. Creating a product that is unique will not be enough to gain the competitive advantage of product differentiation if the buyer does not value what the seller is differentiating on. When you build your business and have your differentiating feature, you have to make sure it’s something people want. Too many businesses have failed because they built something for their needs but forgot to check if other people were having the same problems.

How do you make sure you’re building something people want? Here are a few ideas:

– Ask people who could potentially be your customers/users.
– Set up a launch page explaining your UVP. Ask for an email address for an early invite. If you don’t get a lot of responses, don’t build it.
– See if there have been any previous attempts to build what you’re proposing.
– Learn about the problems people have with current offerings and determine if your solution is compatible

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Of course, differentiation is not without its pitfalls. Here are 7 things that you need to avoid.

1. Uniqueness that is not very valuable
Just because something is unique doesn’t mean that is has a higher value. Focusing on a characteristic that is either unwanted or not able to be perceived by the buyer will be a waste of time and money.

2. Diminishing returns of differentiation
You might start off with a clear strategy to offer the very best customer service in the industry. This is a good strategy to pursue, but at some point it will hit the law of diminishing returns. Once you become too differentiated, you leave yourself exposed to a competitor that can offer the right level of differentiation at a lower cost.

3. Too expensive
Differentiation allows you to charge higher prices because customers are willing to pay more for products that better suit their needs. However, if you charge too much for your differentiated product, your customers will quickly find an alternative.

4. Ignoring Signalling Criteria
Many companies refuse to invest in marketing or advertising because they believe their superior product is enough to attract significant buyers. However, if you are selling to inexperienced customers or buyers that don’t understand the difference in value of one product from another, you leave yourself exposed to a company that offers a product that is lower value but has a better understanding of signalling.

5. Not understanding costs
Differentiation often requires that you invest heavily in the areas that you are looking to set yourself apart. However, if you don’t fully understand how your direct costs, the price you are able to charge and the buyer’s perceived value are all interrelated – you will not be able to create sustainable differentiation.

6. Focusing too much on the product and not the bigger picture
A company that is focusing on creating a differentiated product will usually focus too much on their own physical product and not enough on the bigger picture of how that product fits into the world. There are many ways to differentiate a product, a lot of which aren’t directly tied to the product at all. It’s important that you fully understand how your product fits into the larger ecosystem.

7. Not understanding the customer
And finally, if you don’t fully understand who you are selling to, their problems and what they value in your product, you will end up creating a product that isn’t really differentiated at all. This leaves you exposed to competitors who actually do understand the market and can focus on meeting the specific requirements of the customer.

As Venus Williams once said:

“You have to do things right to stay in business, and that’s not easy, and that’s a choice on a daily basis, the choices you make in how to run your business and how to have a point of differentiation and how to be true to your brand, how to offer something that people want and to offer something that you love.”

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