Differentiation Strategy

Winning Customers by Being Different

Kevin Holt

• Verlag: Routledge
• Jahr: 2022
• ISBN:
  9781000589245
• Auflage: 1
• Thema: Betriebswirtschaft
• Thema: Unternehmensstrategie

This comprehensive and richly illustrated book explains how to create a differentiation strategy—a strategy for being different in a way that causes customers to prefer your products and services to those of your competitors.

Filled with frameworks, tools, and templates, this book will enable you to create a compelling answer to your customers' most fundamental question: Why should I buy from you instead of your competitors? What makes you different? The first half of the book provides an in-depth analysis of the concepts and principles that underlie the practice of differentiation, including the meaning of competitive advantage, competitive strategy, and customer-perceived value. The second half of the book explains how to create a differentiation strategy by identifying the target of your strategy, using customer research and creative problem-solving to design a unique offering, devising a value proposition that emphasizes a key benefit and the reasons to believe you will deliver the benefit, and designing the activity system that will implement your differentiation strategy.

Business leaders in companies large and small, business students, and leaders in government, higher education, and the non-profit sector will gain a deep understanding of all that goes into creating a successful, difficult-to-copy differentiation strategy.

1 Competition

DOI: 10.4324/9781003271703-2

The concepts of competition, competitive advantage, and competitive strategy seem simple enough. That is until you try to define them. Give it a try. What's the meaning of competition? Is there a difference between competing in a race and competing for a customer? In business, what does it mean to have a competitive advantage? And how do you know when you have one? What is a strategy? What is a competitive strategy? Are there different kinds of competitive strategies? In this chapter, we take a closer look at each of these terms and the questions that surround them.

Competition Defined

If you had a tough time defining competition, don’t feel bad. You’re in good company. James Case starts his book Competition: The Birth of a New Science by noting that competition is a surprisingly difficult term to define. Despite repeated attempts, he explains, modern lexicographers have failed to improve on the definition given by Samuel Johnson in the 1755 edition of the Dictionary of English Language, where Johnson defined “competition” as a noun meaning “the act of endeavoring to gain what another endeavors to gain at the same time; rivalry; contest.”¹

Johnson's definition evokes the image of two children tugging on a teddy bear, each endeavoring to gain what the other is endeavoring to gain at the same time. From there, it's a short leap to imagining the two children as adult business rivals, each endeavoring to gain a customer the other is endeavoring to gain at the same time. Case, an expert in game theory, goes on to explain that in a two-party competition the contest amounts to a zero-sum game—the winner wins what the loser loses, be it a teddy bear, a customer, or something else. But, he says, the definition of competition gets a lot more complicated, and inescapably mathematical, when the contest is a non-zero-sum game among three or more competitors. Fortunately, for those of us who didn’t get the math gene, we can get by with Case's amended version of Johnson's definition, which says that competition is the act of endeavoring to gain what others endeavor to gain at the same time.

Competitive Advantage

Most people think of a competitive advantage as something that gives one party a better chance of beating another in a contest or competition. With wrestlers, for example, that “something” is strength. Stronger wrestlers have a competitive advantage relative to weaker ones. In basketball, it's height. Taller basketball players have a competitive advantage compared to shorter ones. And in most sports, the team playing at home is considered to have a “home-court” or “home-field” advantage.

But the concept of competitive advantage is a bit more complicated in business. As explained in the book Strategic Learning: How to be Smarter Than the Competition and Turn Key Insights Into Competitive Advantage, authored by Willie Pietersen, formerly the CEO of several multi-billion dollar companies and now a professor at Columbia University Business School, a company's offering has a competitive advantage when, relative to a competing offering, there is a bigger gap between the amount of value customers perceive that they derive from the offering and the cost the company incurs to provide that value.² The idea is illustrated in Figure 1.1, where you can see that the gap between your offering's customer-perceived value and the cost of providing that value is bigger than the gap between your competitor's customer-perceived value and its cost of providing that value.

Figure 1.1 You have a competitive advantage when your offering has a bigger gap than your competitor's.

Source: Adapted from Strategic Learning: How to be smarter than your competition and turn key insights into a competitive advantage, Fig. 2.1. Reproduced with permission.

Pietersen goes on to explain that the amount of customer-perceived value is something you can objectively assess because price and volume (units sold) are derivatives of value. You know you’re providing more customer-perceived value than your competitors when you can charge a premium price without sacrificing volume or you can improve volume at comparable prices. But when customers perceive that you offer comparatively less value, you can expect to see a decline in price, volume, or both.

It's tempting to think that,...