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Berkonomics

Incremental differentiation doesn’t cut it anymore.

One important element of positioning a company is pricing strategy.  There are five niches you can chose when defining your positioning strategy:  price, quality, service, innovation, and elegance.

And although many positioning efforts cross the lines between these, great companies play to the strength of just one.  And within that slice of differentiation, to make any sort of impact and lasting company, the difference between you and your competitor cannot be incremental.  “Me too” positioning is lost in the noise of today’s targeted marketing and corporate reach through inexpensive, but effective, use of Internet marketing.

First, and easiest to understand, is creating differentiation by price.  Certainly Wal-Mart, Target and others have gotten the attention of their potential customers using price as the primary leader to drive sales.  Wal-Mart succeeds because it has changed the game with its suppliers, actually partnering with them to help drive costs down so that prices can truly be lower at the store level.  Since that capability is far beyond most every other retailer, there is great risk in competing by price alone.  Most anyone else can meet or beat your price any time they wish.  And their motive may have little to do with short term profit, a most frustrating finding when you finally realize that it is impossible to compete with such driven opposites.

[Email readers, cintinue here…]  Price can become a competitive tool by creative companies when they can change the game, reducing the number of parts for example to lower manufacturing costs, or reducing the time to install a product, lowering after-sale costs.  But, for the most part, competing on price alone is not a good strategy for the long run.  Success is not rewarded appropriately by continued dominance of a niche when price alone built that niche.

Quality can be, and is, an important differentiator.  Ford returned from the land of the nearly-dead to become not only profitable but a desirable alternative to the dominant Japanese cars by emphasizing quality at competitive prices.  And some brands are built principally upon quality even at increased price, including Mercedes, Jaguar and Lincoln, to name a few auto brands that have successfully been able to charge more for quality than just the added features above their lower-priced competitors.

Service is a remarkable differentiator.  Those who shop constantly at Nordstrom’s are knowingly paying more for personalized service that has proved endearing and able to withstand the competition for decades of continued high standards, uncompromised by the need for profit first, service second.  Internet hosting providers, iSPs, are often distinguished by larger potential customers by the level of uptime which equates to quality of service, even at incrementally higher hosting cost.

Innovation certainly defines a number of companies catering to early adopters and the mass audiences that follow.  Apple stands out as the first name on most minds when thinking of innovation, even though Apple originated none of its dominant product lines, choosing instead to come to market with innovative adaptations of existing products.  The iPad created an entirely new market segment from what was for over a decade a sleepy niche computer tablet market dominated by a few small-selling products aimed at niche markets.

And finally, elegance serves as a major differentiator for those who are willing to add quality and service into a brand that is priced well above reach of the masses.  Coach, Bentley, Patek Philippe, and Chanel are brands defined by elegance, not feature-functionality and certainly not by being the low priced competitor.  The great benefit of reaching for differentiation outside of low price is that the public you court is the public loyal to you over time because of your brand and your brand recognition, and the least likely to abandon you for another when their price is lower by increments.

Branding, price strategy, and positioning are related as differentiators that help you to increase margins and drive profits when competitors fail with inferior strategies.

  • “Price, Quality, Service, + Innovation” … a good formula for product market differentiation. “Quality + Service” tags as an additional elegance factor. These are simple, reliable and easy to use factors driving a “total success” formula.

    Thank you Dave for keeping it simple…and the reminder to review the formulas.

  • Michael O'Daniel

    I don’t know that I would characterize WalMart’s relationship with its suppliers as “partnering.” I believe it’s more like “this is what we’re willing to pay, you figure out how to supply us at that price or we’ll find someone else who will.” But otherwise, an excellent and comprehensive overview of how to differentiate.

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