Lack of differentiation is a widespread problem

Given the difficult trading conditions facing most small businesses it is surprising that so few manage to differentiate themselves from their competitors.  If you run a small business and have developed one or more meaningful points of difference, you are currently facing far less competition than you would otherwise encounter.

As differentiation is so important, why don’t more small business owners position their businesses to be unique in their chosen markets?  The benefits are significant – less competition in sales, fewer clients being tempted to switch suppliers, lower cost of sales and increased profits from long-term clients.

Your competitors, of course, won’t stand still.  As soon as they see you have an advantage over them, particularly one that helps you to win more sales, they will focus on neutralising your advantage.  They will enhance their product/service as soon as they can to match your area of uniqueness, dragging you back into the group of “me-too” suppliers.

This means when you select some aspect of your product/service to improve which makes you different, you must ensure your competitors can’t simply copy you.  This transient differentiation might give you a competitive edge for a short time before your competitors get organised enough to match (or improve on) what made you different.

For example, you might decide to introduce a fully insured, next-day guaranteed delivery service with no increase in your standard delivery charges.  Your prospects and clients can be easily persuaded to buy from you if your competitors all offer a standard (unpredictable) postal service.  Once your competitors are impacted by this enhanced service you offer (as soon as they lose sales to you because of your higher quality of delivery service), they will introduce a similar option.  This immediately negates your advantage and your service, once again, seems the same as your competitors’ service.

This leads you to introducing another benefit for your purchasers that, once again, sets you apart.  As you can see from the above example, as soon as you do this your competitors begin working on ways they can counter your advantage.

It soon becomes obvious that this cycle isn’t giving you any sustainable benefits as a result of introducing these points of difference.  They are being neutralised by your competition too easily.

What you should strive to achieve are points of differentiation that your competitors will struggle to neutralise.  One of the ways to do this is to enhance your product during the next revision of its functionality.  These enhancements will eventually be matched by your competitors, when they release the next revision of their competing product.  Depending on the frequency at which new products are released to the market, you might gain an advantage for as long as 2 years before your competitors catch up.  In that time, you can be working on further enhancements to your product that will set it apart from competitors in other ways.

A good example would be technology companies who have product enhancement cycles of about 12 months.  Look at how Apple is continually enhancing its products to stay ahead of competitors who are desperate to match its latest round of innovations.  Another good example is the automobile sector.  Product enhancement cycles for major enhancements are more like 24 – 30 months.  The first mass market company introducing hybrid cars, Toyota, had the advantage for about 2 years before competitors caught up.  In that time, Toyota began developing hybrid models across its range to keep it ahead of the competitors playing “catch up”.

Of course, Apple and Toyota are not small businesses.  However, the same principles apply in the SME market, but on a smaller scale.  If you can build an enhancement into your product that your competitors will not be able to copy until their next product revision, you will have a period where you are clearly differentiated.  You can exploit this benefit while it remains unique but keep in mind you have to design other new features for inclusion in your next product revision.  You must keep investing in your R & D activities.

Now, perhaps, we have an explanation for why so few small businesses differentiate themselves.  Medium-term differentiation takes a considerable amount of time and effort, as it has to be designed into existing products.  Most small businesses probably go for the easier option, introducing something that their competition can easily copy – like the enhanced delivery example above.

Of course, there is still one more vital factor to consider and that is what do your prospects and clients want?  It is all wasted effort if, when you finally release your enhanced product, your buyers aren’t interested / excited by the feature that now makes you different.

You must take into account what your potential buyers value.  By developing a feature that becomes a “must-have” option for your buyers, it means your competitors are stuck (until they copy your latest features).  You should benefit hugely from this situation.

Naturally, if the new feature isn’t of any importance to your buyers then it doesn’t figure in their evaluation of competing products.  Once again, your product looks much the same as those being promoted by your competitors.

Differentiation is not easy to achieve but it is very important for your medium-term success.

ACTION IDEAS

  1. Study how, if at all, your competitors have identified any points of difference that gives them an advantage over you.  Identify the specific steps you need to take to neutralise their advantage.
  2. Brainstorm with your colleagues all the ways you can extend your product to create some key differences that you can emphasise in your marketing.  Put a plan in action to develop them.  Get feedback from your best clients and allow them to guide you to implement those features that will address some of their business issues.
Posted in Differentiation