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Chapter 7 Differentiation Objective: determining the company’s sustainable competitive advantage Differentiation in the Customer’s Mind Differentiation is some aspect of the product, service or company that is unique in the customer’s mind and holds value for the customer. Basically, this is any unique selling propositions (USP) that customers view as different from competitors and desirable, and that offers an advantage over competitors. Unique Selling Proposition (USP) Many marketers think that companies should promote only one benefit to the target market. Rosser Reeves call this is as unique selling proposition (USP). According to him, each brand (SBU) should determine an attribute and dedicate itself to become “number one” on that attribute. The underlying idea there is that buyers tend to remember number one better, especially in an overcommunicated society. Thus Toyota differentiate itself on economy, Mercedes and Cadillac on luxury and Porsche and BMW on performance, Volvo on safety, Domino’s Pizza on home deliver in 30 min. USP presents a plain, straightforward message to the customer easier to perceive and understand. Consumers simplify the buying process by categorizing products in their minds. Marketers do not leave their products’ positions to chance. They must plan differentiation strategies that will yield sustainable competitive advantage (SCA) or at least a competitive advantage. The more difficult the advantage is to replicate, the greater its benefit and the longer it can be used as a competitive weapon. As did Burger King who promoted “broiling, not frying”. Since it was difficult and very expensive for McDonalds to change all its fryers with broilers Burger King’s tactic was an effective differentiating factor. Areas where one company can differentiate itself would include product or service quality, fast service, good location, recognizable name and associated image factors, etc. Differentiation Strategies Marketers can differentiate (differentiate) their products on; product: a company can differentiate its physical product from the competitors e.g. product feature Volvo provides safety, Delta Airlines offers wider seating and free in-flight telephone use, British Airways offers showers; product performance - Vestel Washing Machine offers express washing, Rinso offers better whiteness; style and design - Porsche offers unique look; atmosphere - Hard Rock Café is special with its interior design, Ciragan Palace with its building; place - Swiss Hotel offers the best Bosphorus view... service: a product can be differentiated by its speedy, convenient or careful service delivery e.g. Akbank offers full banking services at home, Garanti offers service during the lunch time, Osmanli Bank offers branches in supermarkets, Migros offers home delivery, McDonald’s offer training for its franchisees… personnel: a company can hire better people than competitors do e.g. Singapore Airlines is well known with its beautiful flight attendants, IBM’s people are professional, McDonald’s people are polite. Disney trains theme park people thoroughly to ensure that they are competent, courteous and friendly. RitzCarlton starts to train its service staff from the very first day. image: a company may establish an image different from the competitors e.g. Motorola “quality”. The company can not create an image in people’s mind overnight, it requires hard and consistent work. Symbols, famous people, color and sponsorship can be used to create image. benefits: a product’s benefit can be differentiated e.g. Nazar chewing gum protects from the devil eyes, Orbit offers teeth protection, Colgate offers better taste... Actually, this is the most frequently preferred method to differentiate. usage occasions: a product’s position can be positioned according to the time of using the product e.g. Hilton “when American business take the family along, American business stays at Hilton”... user category: a product can be positioned for some people e.g. Johnson&Johnson’s baby shampoo, Pepsi Max for adventurous men… against another product: this approach can be named as competitive advertising where the company positions itself directly against one competitor e.g. Avis “we try harder” against Hertz, Wendy’s “where is the beef ?” against McDonald, Sabah against Milliyet; Burger King against McDonald; Sheraton against Hilton… product class dissociation: a product may also be positioned away from all competitors e.g. Sprite has positioned itself against the “cola” products, Yapi Kredi claims to be giving the best services… price: a product can be differentiated by using its price. The product would be having the lowest price in the market e.g. Alo. In this case, the company offers equivalent benefits at a lower price. The alternative is having high price in which unique benefits offset the higher price. turbo marketing: Kotler and Stonich propose that there are four stages of competitive marketing: making goods less costly; designing products to be different; making better products; (all focus on product differentiation) and making (before competitors) and delivering goods and services faster than competitors (called turbo marketing). Steps to Follow 1. 2. 3. 4. The differentiation task involves the following steps; Identifying a set of possible competitive advantages upon which to build a position Choosing the right competitive advantages Selecting an overall differentiation strategy Effectively communicating and delivering the chosen position to the market. Differentiation Map When considering the significance of the company’s differentiation strategy, it is important to make sure that the selection is one that is valid and is perceived by the customer as unique. If the selection is debated, customer profiles, product/company capabilities, and competitors must be reexamined. The differentiation map is a useful method to determine the right position for the company. The differentiation map is a graphic representation of the company’s capabilities + the relative reflection of those capabilities on customer needs. Down the left hand side of the map, customer’s needs would be listed in priority order. Across the top, there would be a rating scale. The scale depicts the company’s capabilities as they relate to satisfying each of the needs. On the basis of the customer’s perception of capabilities, the company rates itself and its competitors in relation to each need. On the map, all companies receive a rating for each need as perceived by the customer. Then, the ratings are connected to garner a picture of the strength of each company with regard to satisfying the needs of the customer. For each SBU, a separate differentiation map should be completed. What the Map Tells You The first and most important feature of the map is that, the gaps between the company and its competitors can easily be seen. A second feature of the map is its ability to highlight areas where improvement is necessary. A third feature is that the map can quickly show, if the company should even compete in a market. If the company is ranked low on the top needs of the customers, the firm should consider drastic changes of even leaving that market. If the company cannot competitively satisfy the customer’s top needs (the minimum requirements, it cannot compete; it is better to consider not playing. Additional Points about Differentiation The differentiation factor should not focus on the company The differentiating factor should not be solely customer focused (but also competitor focused) The differentiating factor’s focus should be dominated by the company versus the competition An easily copied differentiating factor should be avoided The differentiating tactic should be kept simple (USP) Possible Errors Underpositioning; failing to really position the company at all. Customers may only have a vague idea about the company or they may not really know anything special about it. Overpositioning; giving buyers too narrow a picture of the company. Customers may have misconceptions about the offers of the company such as offering only very expensive products. Confused positioning; leaving buyers with a confused image of a company.