Horizontal Differentiation

The options to differentiate a brand can be narrowed down to three: “better”, “different”, or “cheaper”.

In a previous post we discussed the “better” strategy a brand can pursue through vertical differentiation. A brand can differentiate vertically by positioning itself on the quality ladder, and supporting that claim through price and attributes to justify it.

With vertical differentiation consumers are in agreement on which product is better, and buying choices are made based on individual needs and budget.

Now it’s time to focus on the “different” strategy.

What is Horizontal Differentiation?

Unlike vertical differentiation where product quality ranking is possible, a brand that chooses to use horizontal differentiation will offer a product that is different, but not necessarily better.

In other words, with horizontal differentiation the good-better-best options are not easily identifiable, and brand choices are made based on individual beliefs.

To illustrate the concept of horizontal differentiation let’s take a look at the smart phone market.

The question “Which smart phone is better: the IPhone or the Galaxy?” generates an intense debate with no definitive conclusion. Each of us has a different (and strong) opinion, but the reality is there is no unanimity on which smartphone is better.

Each of the two companies carved its own niche market, with very little overlap. Apple die-hards will never buy a Samsung product, and vice-versa.

Hence the main benefit horizontal differentiation provides: the ability to build a truly differentiated product and attract a loyal customer base, that will reduce the pressure to compete on price.

The key to success is to identify a less competitive market niche that you can profitably target, instead of launching a better alternative into an overcrowded segment.

Some Examples

Let’s take a look at some more examples of brands that use horizontal differentiation to successfully compete in crowded categories.

Subaru carved its unique niche in the automotive market, by deciding to focus exclusively on offering 4-wheel drive vehicles, and reinforcing the “car for people who love the outdoors” message.

The car rental market is dominated by big players such as Hertz, Avis and Enterprise. Zipcar pioneered the car sharing concept as a way to differentiate and gain market share.

The company offers the option of renting a car for only a one or two hours, and convenient pick up and drop off locations.

For Zipcar customers who calling themselves “Zipsters”, the brand encompasses not only the convenience of short term car rental, but also the “green” philosophy that comes with it.

The Subaru equivalent in the digital camera market is the GoPro brand. While big players such as Nikon, Canon, and Olympus compete on the number of pixels and LCD screen size, GoPro positioned itself as “the best action camera in the world”. In a few short years the brand has become the preferred choice for those with an active lifestyle.

Benefits of Horizontal Differentiation

There are a few benefits of the horizontal differentiation that are worth mentioning:

A more loyal customer base. Since consumers have less viable alternatives, they are less likely to switch brands or expect price reductions.

Less pressure to compete on price. Horizontal differentiation eliminates head to head comparison, resulting in less pressure for price reductions.

High barriers to entry for newcomers. Niche brands usually create a strong emotional connection with the consumer. As a result, a new entrant will have a difficult time changing customer perceptions, even if able to offer a product with similar features.

Vertical and horizontal differentiation usually coexist within the same category.

While Apple and Samsung are horizontally differentiated, Vertu, the luxury mobile phone division of Nokia, chose to differentiate vertically, by positioning their phones as luxury objects and highlighting the craftsmanship, exclusivity and personalized service, rather than screen resolution and camera performance.

Implementing horizontal differentiation implies that a brand chooses not to target the whole market and dominate the category, but rather focus on a niche segment and service it very well. It can be a highly profitable strategy that can pay huge dividends, however mass appeal is not part of the package.

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