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56. Michael Porter and Competitive Advantage for Small Business (Part 6)

Michael Porter’s second generic strategy in Competitive Advantage is Product Differentiation.

Product Differentiation is about your product being perceived as different from other competitive offerings. It may be that the difference is real – your product or service is faster, healthier, safer, more reliable, bigger, smaller etc. (If so, it is only relevant if these real differences are also perceived to be the case). Or it may be a matter of  pure perception – your product or service is considered to be sportier, more elegant, more fashionable, funkier, healthier, gentler, friendlier, more effective, more aggressive etc even when the actual physical differences are not noticeable. (It is interesting how the actual differences and perceived differences can be very different from each other).

Products can be differentiated on a national scale: even commodities such as soap powders and washing up liquids, especially in the peak period of brands in this market, have been significantly differentiated: one will pitch on gentleness, such as Fairy Liquid whilst another will highlight technical superiority and effectiveness, as all those ads featuring wonder ingredient x and consumer comparisons did. Another may differentiate itself by linking with a manufacturer recommendation as it helps extend the life of the machine. By creating this differentiation the brands appealed to different individuals or groups of individuals within the market and created a segmentation for what had been a pure commodity product: the same for all.

At a local level or in a specialised market the differentiation can be just as significant. One accountant can differentiate himself from another by technical capabilities – for instance, as a tax specialist – or by personality – whether that be the nice person you like to work with or the ‘tough cookie’ who its good to have on your side, or effectiveness: the person who will deliver you the biggest savings, the greatest efficiencies or added services: e.g. the accountant who also provides advice to help you make the most of your business. Or they may differentiate themselves by type of customer: business or personal, or at a more detailed level, as particularly appropriate if you are a retailer etc. This also starts to take us towards the third generic strategy: focus. But we will save that for the next post. 

Why should the smaller business consider differentiation? Putting it simply, if there is nothing remarkable about your business, then why would it be anybody’s first choice as supplier of your product or service? If there are those out there who stand out in some way or another then they will be the first choice for those for whom that differentiation appeals. For others, you are almost taking ‘pot luck’. Look at the Yellow Pages for businesses who choose names beginning with A or even AA to be first on the list. Often there is nothing else to differentiate them from competitors, so they aim to get a little more than the average number of ‘pot luck’ calls by being first in the directory.

As there are no prizes for coming second in business, you need to be first choice for enough prospects to achieve your business targets, so do give some attention to how you can become or are special to your clients (it always amazes me how many businesses ARE special to their clients but do not really know how, so they cannot promote it!). One good way is to do some research with a range of clients and find out the truth – or at least a customer’s view of it.

It never hurts to talk to your clients more – especially when everyone wants to poach them!

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