The decision as to “where to compete” in the chosen target segments has been made that should drive sales volume into the underlying Competitive Advantage (CA) or Strength. Now marketing’s differentiation and mix represents the “how we compete” in each target segment.
This involves configuring the underlying CA or strength competency into meaningful customer value to the chosen target market, in order to keep the CA relevant in the changing market and derive profits from it:
Differentiation seeks to raise a target segment’s assessment of the product’s perceived and actual quality. This widens the “utility to customer – cost to company” gap, to afford a maneuverability on pricing to achieve the marketing objectives of sales volume (by lowering price for higher customer value) and % margin (by holding or raising price whilst offering sufficient customer value):
A point of differentiation is chosen that offers:
– As high a level of motivation to the target segment as market research indicates with a gap in unmet needs, a unique solution or problem detection, and
– That the company’s CA or Strength can most convincingly deliver, have a greatest advantage over rivals in delivering and therefore that rivals are unable to match for some duration.
Successful differentiation needs to fulfil both, in order to secure high % margin and/ or sales volume in that target segment.
Competitive forces drag a differentiated product to the lower left area, whilst marketers seek to push it to the upper right. As the CA or Strength ebbs over time, the marketer’s ability to differentiate into the upper right will also decline and so margins and sales volume slip accordingly.
The ability to differentiate declines as the CA ebbs.
Marketers have long been encouraged to differentiate their products from rivals, yet are often unable to because the reason is beyond their control: all differentiation is built upon an underlying CA or Strength.
As the CA or Strength declines in its ability to deliver superior customer value, a company is less able to meaningfully differentiate its products from rivals. For if customers desire a differentiation and believe it to be unique to that company- causing an increase in sales and success in the market- then competitors will quickly imitate and nullify the differentiation if there is no CA or strength barrier impeding them from doing so.
This table shows the reduction in persuasive differentiation as a CA or strength ebbs:
What level can we differentiate on?
Considering the above table, the aim is to convey how the product is different, better or special by seeking as high a motivating level of differentiation that the target believes we are uniquely credible in delivering over rival alternatives:
Level 1: Branding by overall goal-based, realising potential and how customer feels. Desire.
Level 2: Unique selling point, brand positioning relative to rivals, the experience and emotional benefits. Trust.
Level 3: Product functional benefits. Technical gain.
Level 4: Differentiation along marketing mix’s attributes and features. Adequate.
The level of differentiation is capped not only by the extent of the company’s CA or strength over rivals, but also by the significance of the product decision in the target segment’s overall life; a low importance purchase is limited to differentiating on levels 3 or 4 rather than 1 or 2.
Level 1 and 2 are a result of delivering actual value to the customer so superior to rivals as a result of a CA, that the company is given perceived value on top in the form of brand value. Whereas level 3 and 4 shows that when actual value over rivals is marginal, there is negligible perceived brand value given by customers.
Process to finding a successful point of differentiation.
1. Create a list of potentially motivating options to differentiate on, based on market research’s understanding of what the target customer desires, their weighting of attributes, problem detection, what their end goal is, positioning gaps in the market etc.
2. From the list, select those that the company’s CA or strength gives a clear advantage in delivering, enabling it to excel at and enhance upon over rivals. Or that rivals are structurally immobilised to offer.
3. Build the reduced, selected few options into creative and vivid differentiations offering a high level of purchase motivation.
4. Test market the differentiation versions in terms of company credibility to deliver over alternatives and motivation to purchase.
5. Select the optimal differentiation and develop the subsequent marketing mix and roll out.
6. Defend from rivals seeking to draw up to parity in that dimension of differentiation over time or adjust to market changes.
Examples of Differentiations and their CA underpinning.
The table shows how differentiation is the act of casting an underlying microeconomics-based CA into meaningful customer value to a target audience.
From this, pricing can be set and therefore customer value decided in three ways:
1. Either the differentiation raises customer utility and due to being the only company able to offer that dimension of customer value desired, the company charges a higher price,
2. Or the differentiation lowers company costs too, so it can charge a similar price to rivals but offer better customer value,
3. Or cost leader and charge lower price than rivals at similar product quality level.
Company’s brand structure.
Having decided the point of differentiation for one target segment, the brand structure across the company’s portfolio of target segments is considered.
This structure could be either individual stand-alone brands, or umbrella brand with sub brands or regional brands, based around:
– The extent that the same customers purchase different products across the range or across different geographic regions,
– The extent of a CA competitiveness (a mere Strength would not enable an elaborate brand portfolio across all target segments), and
– The extent that brand’s cost sharing scope economies can be realised.
With the differentiation from rivals decided, the marketing mix serves to communicate this differentiated, superior value to customers.