Radically challenging the default of sameness.
What’s left when you break through all the noise, the professional-thinkers, the education and the assumptions we bring about business? At its core, it is really all about the exchange of value. People don’t buy corporate strategies, HR teams and balance sheets.
They buy value.
But what if the value you create is indistinguishable from the value another creates? Or another 10 businesses? Or another 100 businesses? You my friend may be in the sea of sameness.
If people can’t see how you’re different from the alternatives, you’re comparable, and reality is if you’re comparable, you’re at best forgettable and at worst replaceable. All things considered if you can’t compete by creating another form of value, you’ll end up being forced to compete on price.
Why price?
Essentially there are only two path ways to win. You’re either a differentiated offer or the low-cost offer.
If you’re not pursuing a low-cost model, standing out from your competition seems like a good move right? But how do you actually achieve that? And why despite acknowledging the need to be different do most business struggle to actually do so.
What is a Differentiation Strategy?
A differentiation strategy is a set of integrated choices that creates contrarian value.
Easy right? Let’s break this down.
First, it’s actually really import to define what we mean by strategy. It’s not a quarterly plan or a checklist of jobs to be done. Those things are about control and management. They’re the things that put you in the place you are now. Strategy is about how you win. More than that, it’s a breakdown of the current situation, a hypothesis of winning and a set of supporting actions. It’s really not about maintaining the status quo or just trying harder.
Integrated choices? Yes. They have to be integrated. It’s a little bit like a seesaw and each time you integrate a choice you move further back from the fulcrum point, the point of leverage. In other words, the more you’re able to align and focus your choices together, the more advantage you’ll get in doing so. Think of it like concentrating your effort. This concentration creates strength.
Contrarian value is the litmus test of differentiation.
If you’re not offering different or distinctive value with the outcome of your differentiation strategy, politely, you may not have got the gist and you’re likely still in the place where you started. Basically, just because you say you’re different doesn’t mean you are. Crucially, if your customers can’t see how you’re different, you’re not.
This is something we see all the time.
The conversation goes something like this. “We’re different.” “How?” “Ah, We’re better.”
Unfortunately, brutal honestly is the only path forward. Anything less than that keeps things at a surface-level diagnosis and pushes you towards tactical differentiation. More on that shortly.
Why is differentiation strategy difficult?
It’s kinda in the name right? Being different is difficult.
We’re social beings after all, different is a risk. What if it doesn’t work? What if it fails? What if I’m a failure? What if I lose everything?
This produces two outcomes.
A. Either you do what you’ve always done and get the same results you’re already getting. Or
B. You make choices similar to your competition which as you can guess leads to similar outcomes.
And you’re back where you started.
Youngme Moon, author of Different - Escaping the Competitive Herd, argues that in many industries, companies attempt to differentiate by adding features, improvements, and conveniences. Sound familar? An approach that often leads to a homogenised market where products and services resemble each other more than they differ.
Because real differentiation is difficult. And because it requires a series of integrated and sometimes sacrificial choices many brands opt for tactical differentiation as Moon suggests. The issue with tactical differentiation is that it can be copied.
Very easily.
This leads to a whole bunch of behaviours.
- Me Too-ing: Straight up copying competitors features, services, products, brands
- Superficial Add Ons: Cosmetic tweaks that don’t create real value
- Price Cutting: Over-reliance on sales, bundles and a race to the bottom
- Unfocused Targeting: Trying to grow through being for everyone
- Better Claims: Claiming to be the best without proof
- Status Games: Who is the most green? Most ethical? Most moral?
- Excessive Customisation: Let’s do it all and overwhelm everyone
- Aesthetic Improvement: Visual updates without meaning and chasing trends
- Technology for Technology: Making apps and making things more complicated
- Stealing Personality: Emulating the tone, personality and style of competition
- Advertising: Let’s outspend our competition
Familiar?
It’s not to knock these as plays, they just don’t create new or different value. It’s choosing a work harder approach than a work smarter strategy.
Now, I’ll nuance this and say creating advantage and maintaining it are different approaches. If you’re already a market leader this is your playbook. I mean look at Instagram. What started as a photo sharing app, the category it created, it has become a hodge-podge of the best features of a handful of apps. It stole stories from Snapchat. Stole text-threads from Twitter. Stole video from YouTube. Stole messaging from WhatsApp.
In order to maintain the advantage it created, it needed to integrate competing adjacent value into its offering. These decisions are less about unlocking a new audience but instead on addressing it’s real challenge of retaining its audience. In this case, they’re trying to create an ever stickier product that reduces user-churn and maximises advertiser value.
Saying that, if you’d want to beat Instagram, you wouldn’t do it by trying to be better at all the things they’re great at and then trying really hard to outwork them.
When to use a differentiation strategy?
There are a handful of signs that a differentiation strategy might be appropriate.
- Unclear Messaging: Your message is vague and forgettable
- Working Harder: You find yourself working harder to just maintain your position
- Competing on Price: You find yourself lowing prices while your costs stay fixed or increase, killing your margin
- Growth Slows: Growth is slowing down
- Feeling Stuck: You don’t know what you can do to change things
- Wasting Money/Misadventures: You’re spending money on distractions and quick fixes that don’t create value
- Reliant on Advertising: You’re becoming overly reliant on advertising for things to work and maintain your status quo, reducing your margins.
You may also want to consider a differentiation strategy as an alternative or additional strategy within a broader business strategy.
When not to use a differentiation strategy?
When you’ve already differentiated. Duh.
What do the the following businesses have in common?
- Airbnb
- Mailchimp
- Shopify
- Uber
Any ideas?
They’ve all differentiated and by doing so created a new category which they’re now the leaders of. It would make no sense for Airbnb to differentiate itself. It’s become the distinctive brand and owns that category. If strategy is about winning, Airbnb already is. It’s already nailing strategic leverage. It’s now left to focus on other forms of leverage like advertising.
Example: Airbnb’s Differentiation Strategy
Airbnb has a different business model. It has a different category. It has a different product. And it has a different brand. Contrast that to a hotel.
Hotels generally own the real estate, Airbnb doesn’t. Hotels compete with each other, Airbnb has it’s own category. Hotels are generic, they look the same, sound the same, offer the same complementary shampoo. Airbnb has a unique voice, unique brand, unique offer.
Airbnb isn’t just a hotel with a different set of colours and logos. It is behind an entirely different type of value. And the market has rewarded that. Airbnb’s market cap is $109 Billion while the largest hotel group, Marriot is only $45 Billion.
Airbnb simply would not have won if it tried to do the same thing as Marriot at the game Marriot is the best at.
How do you actually Differentiate?
Differentiation is a bit of a buzz word and along with its overuse, its real meaning has been eroded. It wouldn’t be uncommon for consultants to peddle differentiation only to essentially give back more of the same. They might be able to help you be ‘different’ to your previous state but it doesn’t really matter unless you’re different in the minds of consumers.
That’s just it, unless it’s different to consumers, it’s just a vanity exercise.
There are three primary ways to differentiate.
- Business Model
- Product/Service
- Brand
This is what Airbnb did right? It was a whole new model to deliver value, it created a distinct product, it created a distinct brand. It innovated a new model, a new product, and a new brand.
But just think, integrated decisions create advantage. If you can, consider how you can innovate across these dimensions not just in one channel.
Now, there’s honestly so much nuance in this. That’s where it can get a little complicated, overwhelming and probably why businesses opt for surface-level improvements. Businesses can suffer from indecision and just keep on doing what they’ve always done despite acknowledging that what they’re doing isn’t working and needs to change.
Don’t be Better, Be Different
At the end of the day you may just need to up the ante and take a radical approach to your differentiation. Where it’s all too easy to add features and services you may find yourself needing to reimagine what you do and create unique experiences that positively disrupt audience expectations. Unsurprisingly, it’s these idiosyncratic brands with idiosyncratic strategies that have loyal customers.
As Peter Thiel has famously said, “Competition is for losers.” Blunt but he has a point.
As tempting as it is to follow the herd, brands that win don’t win because they’re ‘better’ they win because they’re intentionally different. Disruption requires looking at things in different ways not just accepting the status quo and trying to play in the same lane as everyone else.
Dont be better, be different.
