“Competitive strategy is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of value.”
– Michael Porter
Different. Set Apart. Unique.
Do these words describe your company? Does it matter? Should your business be intentionally different? The simple answer is yes. Your customers need an opportunity to choose you over your competitors. A differentiation strategy acts as a foundation and catalyst to your brand, position, and marketing.
Let’s talk briefly about differentiation strategy and how to ask questions to develop your own personal strategy. For the sake of brevity, let’s look at one leading model in developing differentiation to create long-lasting strategies.
PORTER’S STRATEGIES ON COMPETITIVE ADVANTAGE
I have chosen to focus my discussion of differentiation strategy on the thoughtful work of Michael Porter. If you aren’t familiar with Michael Porter, reading some of his work is worth your time. He is definitely a thought leader in developing competitive advantages in both business and government.
This graphic from Wikipedia denotes the four generic choices to focus on when tipping the competitive balance in your favor.
LOW-COST LEADERSHIP (Low-Cost: Broad Market)
If you want to steer your business as the cost leader, you need to 1) provide your goods or services at the lowest price and 2) create your goods or services at the lowest cost, which provides an appropriate profit margin for sustainability. If you market yourself as the low-cost leader without limiting your scope, failure would be insurmountable. However, the reward would be the largest possible market share within your vertical. This is a high-risk/high-reward proposition.
To be the low-cost leader, you must be confident that:
- You can create the product/service for less.
- There is not a “better way” out there to offer your product/service.
- You’re willing to aggressively make tough decisions to cut costs, sustaining your position as the low-cost leader.
- You will accept low margins to focus on a high volume of sales.
DIFFERENTIATION (Uniqueness: Broad Market)
A differentiation strategy does not ignore cost and price, but creates an atmosphere of superiority and pride in one’s product or service. The business leader developing a broad-market differentiation strategy will resonate with the following statements:
- I believe no one can build or create my good or service better than I can.
- I believe our quality is worth extra cost.
- I believe consumers have many options—but mine is clearly the best.
- I believe frequent innovation and constant evaluation are the core of my success.
- I believe we differ from our competitor in many ways, not just one.
- I believe we are fully committed to effective advertising and long-term sales.
FOCUSED LOW-COST (Low-Cost: Narrow Market)
Sometimes if you focus on a niche market, you can become a cost leader in a smaller market. This is not possible in many verticals and industries, especially since e-commerce has made the consumers’ choices more prevalent than what’s available on Main Street. A focused low-cost leader can build a clientele that sees your product or service as customized specifically for their needs at the lowest possible cost. A focused low-cost strategy may find underserved or ignored customers and choose to create a low-cost product for that particular consumer segment—using special knowledge or expertise to serve this small population. If you are too focused on low-cost, it might mean you are sacrificing some quality to create a product suited for niche-market needs at a competitive price within the broad market.
FOCUSED DIFFERENTIATION (Uniqueness: Narrow Market)
A focused differentiation leader often offers a specific customization to the product or service. Like the low-cost focused strategy, the focused differentiation strategy finds a much narrower market to create goods that emphasize customization and quality. This explains the increase of price.
EVERYDAY LIFE EXAMPLES
Take a moment to think through the marketing strategies and positioning around you. Think about Walmart vs. Target, State Farm, Geico, and Prudential. Look at car companies and online retail. Every vertical and industry leader has used one of the above generic strategies as the foundation of its sales philosophy.
A VERY ABBREVIATED CASE STUDY
Let’s take a moment to identify the conscious and unconscious strategies implemented by yarn shops in greater Chicago. Looking at their presence, can you identify which generic Porter strategies they use to differentiate themselves in a crowded and new market? First, let me make a few statements about the legitimacy of this test. I am a not an expert in yarn. I don’t think I’ve ever been in a yarn store, nor have I ever knitted or crocheted. Second, my evaluation is superficial, made from a two-minute Google search and analyzing websites of a few stores. Third, this leans toward focused strategies because the broad market leaders are the larger craft store chains (e.g. Hobby Lobby or Michael’s), and these Chicago-area stores naturally fit into a niche market of the broad market. However, I will treat the greater Chicago community as the broad market and yarn sales as the broad industry. With that in mind, let me show you how each of these stores positions itself.
Windy Nitty describes itself as a “Chicago yarn store.” Its broad-market focus is emphasized in its playful, creative store name and logo. Its web presence highlights community and relationships, setting itself apart as a location to find community in yarn sales—not just the purchase of a product. Windy Nitty seems to place high value on the social nature of knitting and differentiating themselves as a “place for yarn and friends.”
Loopy Yarns creates itself as the leader in knitting and yarn education. Loopy Yarns states that, “One of our goals is to be the most helpful yarn store you’ve ever been in.” They have a Chicagoland focus, aiming to sell yarn and create knitters.
Strategy: Focused Differentiation
Nina tries to differentiate itself as a professional and progressive yarn store. Its proclaimed identity is a “Zen Temple of Fiber” in Wicker Park. Nina seems to focus on sophistication and quality while esteeming to be a trendsetter in a particular neighborhood of Chicago.
Knot Just Knits
Strategy: Focused Differentiation
Knot Just Knits focuses on its comfort—you won’t feel stupid if your understanding or skill is limited. It places itself in the Chicago suburb of Oak Brook.
My Final Yarn Thoughts:
I soon realized I probably wouldn’t find a cost leader among the stores that I chose. This is because of the small margin in price among the competition—or because the “big-box” stores make it impossible to be a focused cost leader. If I were advising a new entrepreneur, I would encourage him/her to investigate the possibilities of becoming a focused cost leader if the opportunity occurred. (Again, I know little about this specific market, so take these comments with a grain of salt. My goal is to help you think about foundation strategies to build brand, position, and marketing.)
You might be asking, “So what can I do?” Here are a few questions to get started. Remember, this is just the tip of the iceberg. Hopefully these questions help you develop of a strong foundation to a long-lasting and effective strategy:
Questions about your competition:
Who are my competitors? What makes them unique?
Could I do better?
Is there something they are missing?
Are underserved or ignored customers in my industry?
How could I reach them? (Remember, only one business can be the cheapest!)
Questions to ask yourself:
Am I willing to sacrifice to become the low-cost leader?
How important is quality to me?
Should I offer customization or create just “one” product or service?
Am I innovative with my product creation and business development?
Do my current customers complement my business?
This is just a start. Differentiation analysis is very important in developing a business plan and creating a marketing strategy. Always ask yourself, “What makes us different, and how can I improve?”
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