Competitive Differentiation: Why its Important?

Buying is an exercise in decision-making. Some buying decisions are made impulsively and almost unconsciously; others are made after long and careful consideration. But all decisions, that is, all logical decisions; are ultimately the end result of a mental selection process by which the buyer converges on a “best” option…

Buyers can perform that selection process in two ways: They can make the selection at random, by throwing dice, drawing straws, or just guessing. Or they can make the selection by differentiating; by acting on a perceived distinction between the available options.

Of these two ways of deciding, differentiation is by far the more “natural” because the more rational process to sort and select one product or service from another. Nobody (well almost nobody) makes a decision, especially a potentially costly buying decision, by random choice unless there is no distinguishable difference between the options.

Think back to the last major purchase you made yourself; your car, an insurance policy, your house. Think about how you came to buy the product or service and the decision-making process that you went through. If you’re like most informed buyers, you did some comparison shopping and researched the options seeking out the distinctive feature or capabilities so that you would make a wise decision. This is typical of intelligent buying.

Now as a sales person you should recognize that this is the exact same process that customers will use to make their buying decisions. In a competitive situation it’s critical that you assist the customer to understand the distinctions between the available options in order to make a decision: This is “differentiation”.  In an article by Dena Waggoner and revised by R. Anthony Inman, they outlined the following:

PRODUCT DIFFERENTIATION: Product differentiation is achieved by offering a valued variation of the physical product. The ability to differentiate a product varies greatly along a continuum depending on the specific product. There are some products that do not lend themselves to much differentiation, on the other hand, many (most) can be highly differentiated. In Principles of Marketing (1999), authors Gary Armstrong and Philip Kotler note that differentiation can occur by manipulating many characteristics, including features, performance, style, design, consistency, durability, reliability, or reparability.

SERVICE DIFFERENTIATION: Companies can also differentiate the services that accompany the physical product. Two companies can offer a similar physical product, but the company that offers additional services can charge a premium for the product. A company may offer products that are very similar to those offered by many other companies; but these products are usually accompanied with an informational, instructional training session provided by the consultant. This additional service allows the company to charge more for their product than if they sold the product through more traditional channels.

PEOPLE DIFFERENTIATION: Hiring and training better people than the competitor can become an immeasurable competitive advantage for a company. A company’s employees are often overlooked, but should be given careful consideration. This human resource-based advantage is difficult for a competitor to imitate because the source of the advantage may not be very apparent to an outsider.

As a Money magazine article reported, Herb Kelleher, CEO of Southwest Airlines, explains that the culture, attitudes, beliefs, and actions of his employees constitute his strongest competitive advantage: “The intangibles are more important than the tangibles because you can always imitate the tangibles; you can buy the airplane, you can rent the ticket counter space. But the hardest thing for someone to emulate is the spirit of your people.”

People differentiation is important when customers deal directly with employees. Employees are the frontline defense against waning customer satisfaction. Other companies can differentiate itself by having a recognizable person at the top of the company. A recognizable CEO can make a company stand out. Some CEOs are such charismatic public figures that to the customer, the CEO is the company. If the CEO is considered reputable and is well-liked, it speaks very well for the company, and customers pay attention. National media coverage of CEOs has increased tremendously, jumping 21 percent between 1992 and 1997 (Gaines-Ross).

IMAGE DIFFERENTIATION: Armstrong and Kotler pointed out in Principles of Marketing that when competing products or services are similar, buyers may perceive a difference based on company or brand image. Thus companies should work to establish images that differentiate them from competitors. A favorable brand image takes a significant amount of time to build. Unfortunately, one negative impression can kill the image practically overnight.

QUALITY DIFFERENTIATION: Quality is the idea that something is reliable in the sense that it does the job it is designed to do. When considering competitive advantage, one cannot just view quality as it relates to the product. The quality of the material going into the product and the quality of production operations should also be scrutinized. Materials quality is very important. The manufacturer that can get the best material at a given price will widen the gap between perceived quality and cost. Greater quality materials decrease the number of returns, reworks, and repairs necessary. Quality labor also reduces the costs associated with these three expenses.

INNOVATION DIFFERENTIATION: When people think of innovation, they usually have a narrow view that encompasses only product innovation. Product innovation is very important to remain competitive, but just as important is process innovation. Process innovation is anything new or novel about the way a company operates. Process innovations are important because they often reduce costs, and it may take competitors a significant amount of time to discover and imitate them.

Some process innovations can completely revolutionize the way a product is produced. When the assembly line was first gaining popularity in the early twentieth century, it was an innovation that significantly reduced costs. The first companies to use this innovation had a competitive advantage over the companies that were slow or reluctant to change.

SUSTAINABLE COMPETITIVE ADVANTAGE: The achievement of competitive advantage is not always permanent or even long lasting. Once a firm establishes itself in an area of advantage, other firms will follow suit in an effort to capitalize on their similarities. A firm is said to have a “sustainable” competitive advantage when its competitors are unable to duplicate the benefits of the firm’s strategy. In order for a firm to attain a “sustainable” competitive advantage, its generic strategy must be grounded in an attribute that meets four criteria. It must be:

  • Valuable—it is of value to customers.
  • Rare—it is not commonplace or easily obtained.
  • Inimitable—it cannot be easily imitated or copied by competitors.
  • Non-substitutable—customers cannot or will not substitute another product or attribute for the one providing the firm with competitive advantage.

SELECTING A COMPETITIVE ADVANTAGE: A company may be lucky enough to identify several potential competitive advantages, and it must be able to determine which are worth pursuing. Not all differentiation is important. Some differences are too subtle, too easily mimicked by competitors, and many are too expensive. A company must be sure the customer wants, understands, and appreciates the difference offered.  A competitive advantage can make or break a firm, so it is crucial that all managers are familiar with competitive advantages and how to create, maintain, and benefit from them.