Differentiation Strategy: How to Gain Competitive Advantage Through Product Leadership

I am a big believer in the fact that the only way a brand becomes successful is through a smart differentiation strategy. Today I am starting a series of articles that elaborates on the concepts of brand differentiation and positioning. Hopefully these articles will offer new ideas and avenues to explore when developing the marketing strategy for your brand.

There are many options of differentiating a brand, depending on the company’s internal capabilities and competitive environment. In this first post I will talk about how to gain competitive advantage through product differentiation.

Differentiation Strategy: 3 Important Questions

Before developing the differentiation strategy marketers should have the answer to these questions:

  • Is my brand the first in the category to claim this differentiating idea? If one of your competitors already owns that positioning your best bet is to explore a different option.
  • Will my company be able and willing to deliver on that competitive advantage over a long period of time? Brand building takes a long time, consistency and perseverance.  If management is not willing to allocate the necessary resources (which vary depending on the industry and level of competition) then your strategy will die in its infant stages.
  • Does my differentiation idea translate into a meaningful benefit for the consumer? If the consumer is not willing to pay for it then you have to start from scratch.

What Is Product-Based Differentiation

This differentiation strategy involves using the characteristics of the product you market to differentiate from your competitors.

Every brand is built on a product (I include services here as well). As a result, especially in the early stages of the brand building process where not enough emotional connections have been built, product-based positioning might be one of the very few options available.

Is Differentiating On Products The Right Strategy For My Brand?

Companies most successful in using this strategy are those who focus on product innovation. They invest important resources in researching, developing, and introducing new products and improving the existing ones.

If you are marketing a commodity such as natural gas, oil, steel, you will find this strategy very difficult to implement. There are multiple ways to differentiate your brand as you will discover in my next articles.

How Do I Differentiate On Product

There are many benefits that consumer value and look for when purchasing a product. Below are the most common ways to create differentiation:

Product features- a product that solves problems faster, or solves the same problem cheaper is worth paying more for. Hyundai has positioned itself as a car company that offers “more vehicle” for the money. It is important for the Brand Manager to establish what the cost/benefit ratio is before making the decision to add a product feature and use it as a differentiation element. If the overall cost is higher than the premium that can be charged for it this strategy is not worth pursuing.

Manufacturing process- how the product is made can be a great way to set your brand apart from competition. In today’s economy where most products have become commodities, the “secret ingredient” or “proprietary technology” can definitely make the difference. Lululemon®, a well-known Canadian manufacturer of yoga-inspired apparel, has built its success on the proprietary luon®, a fabric that provides shape retention and great stretching capabilities. The brand has basically become synonym with yoga apparel and dominates the segment against giants such as Nike and Adidas.

Performance- is another great product attribute that can be used to separate your brand from competition. BMW makes great use of this concept  by positioning their cars as “The ultimate driving machine.” Cervelo’s dedication to designing and building aerodynamic bikes is what helped the brand carve a distinctive niche in the super competitive race bike segment dominated by much bigger players such as Trek, Specialized and Giant. Their slogan, “Speed. Engineered.” is a great reflection of their philosophy.

Design- Attractive, unique product design is a very effective way to differentiate. Apple is constantly pursuing this strategy which reflects in the entire assortment, from iPods to MacBooks.

Italian companies frequently pursue this strategy, be it in cars (Ferrari), clothes (Gucci), or bicycles (Pinarello, Cogliano). Nordic European countries are famous around the world for their design that combines simplicity, functionality and practicality.

These are just a few examples of how product-based differentiation can be achieved. There are basically unlimited number of options that a company can pursue, depending on its capabilities.

Is “Product Quality” A Good Way To Differentiate?

This question usually generates a lot of debate. Here is my take on it: in mature markets such as North America and Western Europe quality is a term that has become over-used and, as a result, can rarely be used effectively to differentiate a brand.

Faced with tough competition a company that offers sub-standard quality products has little chance of surviving. That’s because consumers take product quality as a given. As I wrote in a previous post, quality has become a point of parity, rather than a differentiation element.

That being said, in emerging markets that are less competitive product quality might be the way to go. If your brand is perceived as offering the best quality products in the category you might have a chance to succeed.

Positioning on product quality is mostly suitable for brands that have a long history of delivering reliable products, accompanied by credentials to prove it. Industry awards and independent test results are great tools to support this type of positioning.

Challenges of Product-Based Differentiation

The “me-too” danger. Product features and characteristics can be easily copied. Your company needs to be one step ahead of the curve and invest in improving and perfecting the product, otherwise it will quickly become obsolete.

The “lower price” danger. Globalization brings a lot of benefits but also many challenges. There is always the threat that a competitor might launch a product with the same features, at a lower price.

The “demanding consumer” danger. Products have shorter life cycles as consumers gravitate towards the” newest stuff”. In order to remain competitive you need to keep up with the latest trends and technologies, or your target audience will switch to competitive offerings.

In my next posts I will explore other ways in which a brand can gain competitive advantage. I invite you to subscribe to my blog by e-mail to make sure you receive all the articles in this series.

Comments

  1. Hi Gustavo,

    Your example shows how powerful the retailers have become. Here in North America Costco, a wholesale retailer (like Metro in Europe) stopped carrying Coca-Cola products in a dispute over pricing. If Coca Cola, a 125 year old brand, faces these challenges, imagine what a brand that’s trying to establish itself must go through when dealing with retailers.
    Some companies built their entire business on the relationship with a particular retailer. They customize their products, hire dedicated personnel and invest important amounts of money in advertising as per requirements. Then one day the retailer decides to outsource the products directly under its own private brand and the vendor is left almost bankrupt. This is based on a real life situation that a company I work with had to go through.
    Thanks for your real life comments and feedback.

  2. Michael, I agree that both North American and Western European countries are so well served by similarly-good products that they don’t seem to differentiate whatsoever. However in Latin America quality differentiation is still a clever way to build a brand as the marketplace lacks of real PLB competition.

    To emphasize on the Challanges:
    In Spain there is a nation-wide retail chain called Mercadona. They suppose about 25% of the weighted distribution (so they’re very important). Their strategy is to sell great products to end-consumer at inexpensive prices (something like Walmart’s everyday low price) whether self-supplied or through price discounts to branded CPG.

    It’s impressive to watch how companies struggle without Mercadona and how the Sales Dept focus their strategies around this chain store when launching new products. They are so important that they’ve included a very strict listing policy which only allows either industry leaders or patented products to their shelves (and only after proven rotational success ‘in smaller supermarket stores)

    They’re so well integrated in their supply chain, that I’ve seen some ‘Product Feature’ innovation being rejected by Mercadona’s (because they don’t represent a significant innovation) that appears at shelves under Mercadona’s PLB at a fraction of a price (they have a very effective supply chain and me-too copy-caters).

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