Why do only a few companies succeed in really distinguishing themselves? —

by Bastian Schneider
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The foundation for sustainable economic success is the distinction from competition. It is common knowledge that customers only get excited by something special. Only exclusivity attracts them, encourages them to buy and causes them to come back and/or buy again. That’s why the essence of a good strategy is to create and reproduce clear distinctive features relevant to the customer. The maxim is: distinguish yourself from competitors or go down! This insight has been common knowledge at universities and in scientific research for a long time.

Big differenzierung

It is therefore all the more surprising that its transfer into management practice is only partly successful. Merely a few companies manage, in their customers’ eyes, to separate themselves distinctively and uniquely from their competitors.

In many fields the opposite can be observed. Companies that participate in daily cut-throat competition for the favour of the customers tend to become ever more similar – instead of disassociating themselves from each other! If you look closely this alignment process can be seen in many relevant performance dimensions which should actually be mobilized to differentiate, e.g.:

  1. In the range of offerings, where many companies increasingly tend to cover preferably all categories and potentially new categories which are also developed by competitors
  2. In the performance value of products and services, which – in extreme cases – only differ from each other by the names written on them
  3. In the advertising messages, which often try to emotionalize with generic motives or stay very superficial, such as “Innovation from tradition” or “Passion to perform”
  4. In the price, where they increasingly settle on supposed price thresholds – and thus express how replaceable they are with the competitors, also in respect of their value
  5. In the visual appearance, where whole sectors have - apparently unknowingly - agreed on uniform design elements and visual worlds
  6. In the behaviour and appearance of employees towards customers; whether on the service hotline, in consulting or in sales
  7. In distribution, where only a few brands actually go their own way and resolutely decide against channels in which the demands of the brand cannot be met
  8. At sales points, where the products of one brand are fragmented into categories, but are presented close to competitors and trade brands

 

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How does it happen?

Seeking the reasons for this loss in differentiation of many companies, we identified a destructive mechanism which runs almost undetected in the background. Today’s management is characterized by two directions: external market orientation and internal raising of efficiency. Fluctuating between the two, managements attempt to optimize their business and the distinguishing features responsible for business success become successively worn away in the process:

 

The danger of market orientation

Market orientation is in itself a very positive thing: the goal is for a company to align itself as closely as possible with the needs of its customers and thus be able to offer maximum relevant services. Our experience, though, is that market orientation in many companies has turned from being the means of goal attainment to an end in itself, and that their market orientation has become too one-sided and uncritical.

The consequence is an increasingly short-term orientation towards the needs and wishes of the customers based on market research, towards new activities of the competition, and towards the many trends of the sector. An evaluation of whether this is beneficial to their own positioning, strategy and capabilities, and whether enough sustainability is guaranteed, is often neglected.

In many cases we observed that market information was used as direct decision parameters, unfiltered and without critical self-evaluation. The company’s actions are increasingly dictated by outside influences. Their actions are limited to reactions and their own drive is getting lost in the process. Under sales and growth pressure the range is getting broader. New categories are opened up without the opportunity to establish clear distinguishing features.

Since all providers make decisions in a similar way based on very similar information, the end result is that they create comparable products or services which are hardly distinguishable from each other.

 

The danger of raising efficiency

Raising efficiency is also an important business activity which is essential for the implementation of competitive prices.

But in certain companies pure cost cutting has become an all-determining, unquestioned agenda. Automated in such a way, it means that – along with costs - valuable qualities and differentiating performances, which made the company something special in the eyes of their customers, are also cut back. The consequence of this: sooner or later, the customers are no longer so willing to pay, and sales of products and services stagnate.

For example a manager told us once: “Both brands, very different in quality and price structure, are produced jointly. We have to think economically!” What he actually meant was “We want to reduce costs!” He automatically equated “profitability” with “cost reduction” and overlooked the fact that the costs actually account for the revenue; both elements must be successfully combined to produce business activity.

 

The consequence: loss of competitive strength

Unconsidered market orientation and unconditional raising of efficiency create factors which severely restrict the competitive strength of an enterprise.

Both in turn bring massive pressure to bear on the other party: the market side tries to offset the growth missing from the cost-optimized range with new products in new categories, while the cost side tries to compensate the dwindling success of the products by reducing costs. The company gets into an ever stronger negative spiral of adjusting to the market and cost cutting, whereby differentiation potential progressively diminishes.

If there are significant losses in performance – usually a gradual process over time rather than abruptly – the business has to stand up to the competition with blunted weapons. Customers and retailers react with disappointment to the offerings of the company. This does not go unnoticed in management. The self-confidence of the person responsible is shaken. The perspective from which decisions are made changes: there is even stronger orientation towards the competition. People become even less critical in the context of further phase-out measures. “Dying virtuously is not an option” they often say.

“Your performances are interchangeable, that’s why you can only stand out with your communication”, the typical mantra of many agencies, is further confirmation towards the wrong direction. Instead of developing substantial distinctive features, the focus is increasingly directed to purely staging the seemingly special. And this doesn’t stay hidden from customers, retailers and the public for ever. The confidence once built now fades away. The company’s reputation suffers.

 

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What can be done about it?

An enterprise can stop this downward spiral at both ends. Before cost cutting the company should become much more aware of which distinguishing features are relevant for the business and which can potentially be mobilized rather than neutralized for the future. Aligning with market needs, a company should – with greater self-confidence and self-image - build up a distinctly more critical attitude towards market research data, competitive activities and trends. Most importantly, it should not try to please everyone.

But how can we develop the critical faculties and attitude necessary? The basic requirement here is a clear and real self-image: Who are we? What do we stand for? What are our strengths? From our customer’s point of view: what makes us special? And which of our services/products are the reason for this?

This means that, with a consistent brand programme, a company can protect itself effectively from simply reproducing the general trend. A brand programme prevents you from accepting the market as a given size and limiting yourself to reacting. It enables an enterprise to develop its own innovative approaches on the basis of its strengths and the always identifiable potential for differentiation. And this is the foundation which can enable the company to become a changing force that will drive the market positively.

To achieve this, to differentiate itself substantially and thus over time become a strong brand, takes courage, resolution and specific knowledge of the feasibility and relevance of their own possibilities; in fact, precisely the founding values of a good business approach without which even today a company cannot be successful in the market – despite excellent standards of education in management, highly professional management tools, and efficiently organized work processes.