choose your direction – what is your point of difference
Differentiation is one of the keys to driving down the cost of marketing. It is certainly one of the keys to effective marketing and maximising return on investment in marketing.
Marketing costs increase as differentiation diminishes.
Without differentiation, it is all about shouting louder and louder, and hoping the consumer will pick you. With differentiation, it is all about being, and being seen to be, more relevant to consumer needs than alternative products or businesses.
A strategic competitive advantage underpins the capacity of a business to differentiate and to do so in a sustainable manner.
Strategic competitive advantages fall into three broad categories:
A business and/or its products can be differentiated on price, and all too many, like Virgin and Coles, take this approach, adopting new distribution channels, streamlined delivery, simpler designs, outsourcing, or re-engineering to give them a cost advantage.
I would argue that competitive advantages based on price tend to be less than ideally sustainable, and often easier to copy. Further, price tends to commoditise products, thereby reducing margins and failing to protect brand loyalty effectively.
Other businesses focus on building a valuable or unique offering. That is the strategic competitive advantage that underpins superior value. Such strategies tend to focus on service, quality, durability and other factors sought by the market. This requires research and development, along with an in-depth understanding of both the business and the market.
This approach to developing a competitive advantage tends to be more sustainable, and generally contributes to superior brand loyalty. It also protects, and potentially enhances, margins. Businesses such as Apple and Microsoft have used this approach over recent years – with great effect – especially in terms of brand loyalty and increased margins.
Some businesses choose to build their competitive advantage around a niche market and, in essence, develop and maintain a superior understanding of, and relationship with, this market than any of the competitors. In many respects, these businesses ‘own’ a segment of the market – positioning themselves as niche players.
In many respects, this is the most powerful approach to developing a strategic competitive advantage. Once established, it is difficult to copy, and tends to be more sustainable as a result. Understanding a market better than any of the competitors makes it easier to develop an understanding of needs and to address those needs – boosting conversion, repeat business and referrals. This approach is more focused, and generally easier to resource.
Focusing on a niche is also more conducive to inbound marketing – selling a wider range of products to the same people – as opposed to seeking out more and more people to buy a single or limited range of products. The focus here is on the customer rather than the price or product. This gives the business scope to tailor both to suit the market – and then to expand the range of relevant products offered. In many respects, building a strategic competitive advantage around a niche is marketing at its best.
This approach is used very effectively by a number of high-end brands such as Mont Blanc and Cartier. It is also a strategy used effectively by technology businesses developing niche software for highly specialised markets such as mining and medicine. In these cases, the offering of the business might start highly specific (a single function) with sales being developed by expanding the offering rather than expanding the market.