Choosing Your Competitive Differentiation Strategy

You must hear about this topic in various circles. I will not pretend that my take on this is better than all the possible answers out there but I wanted to provide a view of how we at Parcus Group approach competitive differentiation development.

Every business has (or should have) an underlying competitive positioning strategy. Most strategies are built around a factor that allows the business to create and sustain a competitive advantage and thus increase profits over time.

We have typically seen the following strategies (options):

Operational Excellence (Price Differentiation) – delivering superior value by leading the industry in price & convenience (an example may include a business like Wal-Mart)

– delivering superior value by leading the industry in price & convenience (an example may include a business like Wal-Mart) Customer Intimacy (Service Differentiation) – deliver superior value by segmenting markets and tailoring offers to match customer needs with the aim of developing long term customer relationships (a telecom business like Telstra Corporation for example)

– deliver superior value by segmenting markets and tailoring offers to match customer needs with the aim of developing long term customer relationships (a telecom business like Telstra Corporation for example) Product Leadership (Product Differentiation)– deliver superior value by offering a continuous stream of leading edge products that make their own & competing products obsolete (maybe Rolls-Royce cars)

It’s critical that you understand your own differentiation proposition using the above framework and create any new products within the boundaries of your organisation’s preferred position.

Now let’s add some numeric dimensions (this idea was added to our view of the framework by The Learning Company who are one of our training partners).

Essentially imagine your 3 options above as corners of a triangle. Each corner & option has 10 possible points.

So the calculation is quite simple: based on your market position in relation to each strategy option above you will receive a score. The maximum possible score would be 30 once you add all the scores – but that is not realistic as a business with best product quality, best customer service will rarely be best in terms of price.

Let’s look at some examples. Take the above company like Rolls Royce. Clearly they have an excellent product deserving of 10, their customer service is likely to be great (not sure as I do not drive one so can not be certain) so let’s assume 9 out of 10 but on the price dimension for an average person these guys would score 1 out of 10 – after all who has half a million dollars or more for a car?

So the RR score is 10+9+1=20.

We will take another example – but before doing so let’s clarify that the ideal score & position seems to be between 17-21. That allows a company or business to effectively compete while still retaining some competitive edge which translates into healthily margin, market share etc… Anything under 14-15 is not good and will lead to a long term business decline.

Let’s look at our second example this one from the telecom industry being Telstra Corporation who are leading service provider in Australia. With commanding market share, solid ongoing profits and cash flow as well as increasing customer satisfaction Telstra seems to be doing something right – let’s see what. Based on a very small audience sample size I took, there is a consensus that their product quality is one of the best in telecom industry so a high score such as 8-9 is warranted. In terms of customer service the answers are more varied but sees to generally be on the increase especially if you take last few years of data, resulting in a score of 4-7 on the customer intimacy dimension. Finally there is the price, on which Telstra scored slightly under the average with 4-5.

Once we add the scores, on the low end we have 16 which for a low score is not that bad but on the upper end we have 21 which is a great score if you can consistently get it… so no wonder why Telstra has been investing heavily into their customer service and customer satisfaction. In the long run, if they can sustain this while maintaining the product quality leadership backed by innovation, it would seem their position of market leader will be assured.

On the matter of widely varied scores and ranges it’s a very good approach to do it this way especially if you have a large customer audience to gather data from and can also capture the frequencies of each customer’s response. This will give you an additional dimension to help you with your business improvement.

So how to actually now us this in practice… we like to suggest to always look at the data and problem from multiple angles. Let’s assume you have completed the above scores using the real customer data. We would suggest you also ask several additional questions.

For example you can get the above responses at a ‘company level’ but you can also ask the customer to score you on ‘product specific’ basis. So using the Telecom example you may want to ask what would you score a Mobile Voice product versus the Internet product. This will give you some guidance on product specific customer perception (and it may surprise you).

An additional dimension you can try to capture would be the ‘customer segment’ data. For example for consumer products you can collect, customer age, employment, living location etc.. and with some analytics you can now easily start to get a feel of how customers perceive the whole company, individual product and for each who is scoring you high/low based on where they live, their age, usage profile etc… which is some very powerful data and you can use it to improve your decisions.

To illustrate with this example, you may have a score of 21 for the whole company, but the product scores are 19 for mobile and 23 for internet for example. But when you look at the data further you may discover that your mobile product score is being dragged down by a specific group of users all living in the post code CA 90210 – which could be due to really bad coverage in the area (so a justified and fixable problem) or maybe some other issue you want to investigate.

That’s all I have time for – I hope you like the tool and more to come…