Do You Really Need Differentiation To Win In the Marketplace?

diamondsMy friend Allen Hauge pointed me to a Harvard Business Review blog post that suggests you don’t need differentiation to win in the market. Since I wrote an entire book suggesting otherwise, I was intrigued by the position taken by the author. So let’s take a look at his arguments and see if he really means what his title suggests.

He begins his blog by acknowledging that popular wisdom suggests differentiation is required to achieve greater success than your competitor. He then points out that there are many areas where companies “do more or less the same thing” and yet among those firms they achieve different levels of success and profits. Why he asks?

He uses strategy consulting firms as his foil. Noting that it is nearly impossible to know if McKinsey is better than Boston Consulting Group (BCG) or Bain, or anyone else. He uses this as his example of choice uncertainty from apparently equal suppliers. He correctly notes that “Research in Organizational Sociology shows that when there is such uncertainty, buyers rely on other signals to decide whether to purchase, such as the seller’s status, its social network ties, and prior relationships.”

That  may be true but it still misses the key point. People buy products or services from firms based on what they perceive is a valuable difference. It is not necessary for there to be a difference, there must be a perceived difference. The converse is also true. That is, if there is no perceived difference, a real difference has no value.

The question I have asked CEOs and CMOs for 25 years is simply this: What can customers buy (or believe they can buy) from your company they do not believe they can buy from anyone else? There must be something or the low-price leader will always win. It does not have to be real, it has to be perceived as real.

To answer the McKinsey question, one only needs to remember that nobody ever got fired for buying from IBM. And diamonds were a relative commodity until De Beers told us they were “forever.”

Stop worrying about what you think is different, figure out what your customers think is  different and valuable in your offering(s). Stop worrying about what you sell, and focus on what your customer is buying.

Mitch

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