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  • Writer's pictureDavid A. Schneider

Differentiation In Business

If you are in business, you probably know the situation:

No matter what you sell or which industry you are in, there are some competitors offering similar or even identical products for a cheaper price.

Thanks to globalization, differentiation in business has become even more difficult. If your company is in the US and some Chinese company offers the same product cheaper, there are no more barriere blocking your customer from buying with them.

Now obviously there are some products out there that have no real way of differentiation in business anymore, but despite this obvious lack they still make huge successes.

Just think about how many manufacturers for shoes there are in the world.

How many of them sell shoes that look almost identical?

What exactly does a pair of Nikes make better or worse than a pair of Adidas or other shoes?

And let’s be honest for a moment: Why are you wearing your favourite brand?

Often the aspects that differentiate a product can be so tiny that we hardly can consciously grasp or name them.

But still we buy our favourite brand or the one we perceive as the best, largely due to the fact that the process of buying itself does take place subconsciously and governs our thinking from there.

So what options to differentiate your product do you have today, even if there is absolutely no way of being distinguished from others with your product at first sight?

In every market there are 3 strong positions that you can dig yourself into.

Once taken, such a position is almost impossible to lose and will make you immune to any attempts of imitation or other forms of otherwise dangerous counterattacks.

However, once one of these positions is already taken in the market, it will be very hard to compete on that term or almost impossible with the company that is occupying the space. Here are the 3 categories:

There is always someone selling as the cheapest.

differentiation in business

No matter in which market you look around, there is always one company that makes its fortunes by underpricing the competition.

This strategy is based on the economic assumption that you can always make the same amount of money with lower prices, if you only increase the volume.

There are certain industries where this principle works like a charm and low prices create a sort of pull in your direction.

Take groceries for instance where companies like Walmart created an empire by always offering cheap prices, and people rush into their stores constantly.

Why should anybody pay 200$ a week to feed the whole family when you can have them all saturated for 100$ at Walmart?

And they are not the only one making use of this strategy for differentiating their company. You will find many other examples if you keep looking around across all kinds of markets there is always one business underpricing the competition and thereby securing its market share.

However, there are some industries whereby only reducing the price will not make you a winner automatically and instead your offering will be perceived as cheaply (and in some cases it also is).

Who would want to drive the cheapest car available?

Or wear the cheapest clothes?

Just look at famous cases like the Tata Nano, the cheapest car ever built. You could buy a whole car for only 2.000$.

But therefore it was missing all kinds of security systems like airbags and even the smallest bit of comfortable driving. The idea was to build a cheap vehicle that should mobilize the masses of Indian people who do not have a car yet, but even for their expectations it obviously was just too cheap and unpleasant to drive.

The company kept the Nano alive with small orders until mid 2018 when production was finally shut down. This company's differentiation has gone wrong.

You should also be careful if you strictly follow the principle that more turnover will generate the same profit even with smaller margins.

The margin is vital for any business, it will determine who can survive a crisis and direct fights with competing businesses.

If you have your margins constantly smaller than your competition, it will mean that they have a definitive competitive edge over you.

And to make matters worse you initiated the advantage for them by differentiating your business on price!

Even if your revenue is going to be much higher, they will be able to sustain in business longer and better even in difficult times - and difficult times will always come sooner or later.

The problem with a high turnover business is that it naturally has to have many more customers, or at least more than other business selling with fewer turnover on a higher margin.

And this will naturally raise your costs:

You will have to invest more in sales and marketing to get to such a large number of customers in the first place.

Then the huge number of customers will exponentially raise your costs for the back end internally: you will have much more work to do in the accounting and customer service, there will naturally be more complaints coming in and the requests for servicing the customer will also be much higher naturally. Also your production has to level up and need more machines and workers to generate the volume to make a profit selling cheaply.

And then the comes the worst side effect of all:

If someone pays good money for a high-quality product, what does such a person expect? Of course they expect the best quality available to industry standards, all you have to do is to keep your promise and deliver them what they paid for and the high-end customers will be happy with what you have to offer.

But what happens if you sell someone a low-end product at discount prices?

Do they expect low quality because they paid less for it?

Heck, No!

Nobody, even if they buy something for so cheap it is almost a steal, really nobody expects whatever he or she buys to have low quality.

And here comes the dilemma for this differentiation in business: you offer a cheap price for the customers, but people still expect you to be delivering something of great quality and will match your product with the high-end offers of the competition.

Just think about the last China-made gadget you bought, even if it was just for a few dollars… how long did it take to break down?

How did you feel?

What a cheap piece of crap, right?

You better shouldn’t have bought it anyway.

Try to build your reputation with such feelings triggered at almost every purchase in your customers - an impossible task.

So before you lower your prices, always check and be certain that it will really be a good idea and helpful to your business.

If differentiating in business with cheap prices create a pull in your industry, go ahead.

But if you can be perceived as less valuable therefore, it is better to look for other options.

This strategy works best if you can have a certain competitive edge in your market that allows you to buy and sell in large quantities and a pull effect from cheap prices.

There is always someone selling with the best quality.

differentiation in business

This is the opposite way to differentiate your business in many cases, but not all of them.

You don’t have to be the most expensive seller to be known for excessive good quality.

Take Toyota for example, a brand that is well-known worldwide for the great reliability in its cars although they are very affordable.

But contrariwise a Mercedes is also a high quality vehicle, but also one of the more expensive car brands.

Do not mistake high quality for high premium prices - a car like a Maserati or a Cadillac is certainly among the most expensive but are not necessarily known for being the best in quality.

Especially Cadillacs are often said to break down regularly and need lots and lots of maintenance (even though I love their looks).

There exists an economic phenomenon that if something is differentiated in business with a high price, people who buy it want to believe it has a higher quality to justify the purchase, even though the actual data compared to other offers might prove otherwise.

Premium products thus differentiate largely through a perceived value of higher quality in the eyes of the customer.

For example, the world's best chronographs and clockworks in the industry are produced by Seiko. You can buy an ordinary Seiko watch for around 50$ with all the high quality standards inside, they focus on quality not on premium.

The premium sellers in the watch industry on the other hand like Rolex do not sell with facts about good quality.

Their salespeople will rather tell you something about jewels or gold incorporated inside the watch, and thus raising the perceived value for a customer because it sounds fancy.

And that is what makes it a premium product, and the reason why Rolex watches cost north of 10.000$ while the Seiko watch sells for 50$ despite being at least of the same quality in terms of the chronograph (the actual part a watch is for).

Differentiating your company with the best quality obviously will force you to put high efforts in customer service, ideally even measure and improve customer satisfaction constantly. The product should be long-lasting in its use and outperform your competitors' similar products in as many ways as possible to really make it visible in real life that what you offer has a certain edge against all the others.

This often also requires you to bring in a lot of experience as you will also have to make sure that your product works in situations like freezing cold temperature, if it gets dragged through mud or in other environments that are not its actual field of use.

In some industries it will take several years in business before you can really make sure that you know enough to make it withstand all conditions and be sure you can ask a justified premium price for it.

The buyers of high quality goods expect them to be just that - high quality.

And thus they are also willing to pay a higher price if they can be sure that what they just bought will be longer and better in its use.

To meet the buyers expectations in this regard all you have to do is keep your promises.

But there will always be some kind of failures, humans will always make something not exactly as they are told to, or there will be bad days in your production and even in the high quality sector there will always be some items made poorly.

To make sure this does not upset customers (we live in the world of online reviews, remember?) , set up a great customer service and arrange replacement and repair policies that will allow a customer who is not happy with his purchase ultimately to leave the place happy and content.

If you follow this tactic, you can certainly also charge prices for your products that will be distinctly higher than those of your competitors.

The higher margin as already discussed is vital for any healthy business and will make sure that in difficult times you have all the edges against any competitor selling at a cheaper price.

And there will be enough differentiation between your business and your competitors.

There is always someone selling the fastest.

differentiation in business

What is the differentiation you have in mind when someone talks about FedEx compared to other delivery companies?

If you really want to send something fast and to arrive it overnight, you will very probably choose FedEx.

Or how about the differentiation for ordering something online when you need it the next day?

There is probably no way around Amazon and its Prime program with overnight delivery.

In every industry there will be cases when you will need something done today.

Just think about someone who is building a house, and suddenly that person notices that they are missing some building material for the construction workers to continue.

Every minute that passes, the people on site have to be paid.

Without the materials they can't do a lot but sit around - while you pay the full price for it.

In such a situation, you ideally want to have the missing material arrived yesterday!

It doesn't matter if your prices are cheap.

It will not even matter if you have the best quality.

If someone needs something now, and you are able to deliver it now, all other factors that usually are taken into account to make a buying decision become secondary.

If you sell a product just like hundreds of others, but you are the one who can deliver on the spot when people need it - you will take a big share of your market no matter what.

Such fast processes in a business usually require you to invest in highly efficient logistics, and might force you to have bigger warehousing expenses because everything has to be available upon request right now.

Amazon for instance invested hundreds of millions in huge and highly technical warehouses around the globe to offer Prime delivery.

Not everybody can do it that way.

There might be some different types of solutions available to other industries but in almost all of them you will need an upfront investment for differentiating by being the fastest to deliver any product or service.

But being the fastest in your field will make you not only differentiated and allow for good margins on what you deliver, it will also be what you need to gain more market share and strengthen your position.

Eventually, if your business has become a commodity and there is no real way of differentiating anymore - one of those 3 ways is always available to let you stand out and differentiate your company despite all competition out there.


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