Dr. Dan Herman
About 95% of what executives in competing companies do is pretty much the same all around. This is good management. If you are CEOing a wireless communication services provider, you strive to have an advanced technological infrastructure with a promising future, cool end-user phones, other devices and accessories, a great service system, attractive added-value services, and competitive prices. Well, this is precisely where your competitors put their efforts as well. The 5%, give or take, that you do differently constitutes your strategy (remember that the genetic difference between humans and chimpanzees is no more than 1.2%). The CEO of Southwest Airlines, the revolutionary domestic American airline, most of the time does exactly what her colleagues do. But her firm offers Ticketless travel, and serves meals in the airport during waits, and not on the plane.
Doing well what you are supposed to be doing – is a prerequisite for competing. It is definitely not a strategy. Being better – is a deserving effort, yet it is not a strategy either, especially not in the long run. Categories tend to converge into an equable level, more or less, of prices/costs, product quality and features, technological sophistication, and service quality. How, then, are you supposed to compete? Well, you could offer your clients more than what your competition offers, for a higher price, for the same price, for a lower price, or – offer them less value for a lower price. All of these options can give you an edge, but usually not for long.
You could also offer something different than what your competition does. You can cater to a need not formerly satisfied by your category. Nokia, for example, did just that when it decided to treat cellphones as fashion accessories and later as entertainment devices. Even this approach could not be considered as an insurance policy. There are no insurance policies in the world of business. But, if it is difficult or impossible to imitate, or it is something not likely to be imitated by your competition – then you might just have created for yourself a mini-monopoly of your own. Well, this is surely an accomplishment that should not be underestimated in a competitive market.
So, what really is a strategy? By definition, a strategy is the way by which you are planning to obtain your goals. In a competitive environment, your goal is that the consumer will prefer you to your competition. That is why the strategy is, in fact, the way by which you plan to achieve an advantage over your rivals – in the eyes of your consumers. Almost always, preference can be achieved only by differentiation, by either doing something other than what your competitors are doing or by doing things in a markedly dissimilar manner. By being different you supply some of the consumers in some of the buying/consuming opportunities with a good reason to want you more (and if you are a great strategist indeed – to want you only).
There are three types of differentiations and only one of them constitutes a strategy (or strategic differentiation). The transient differentiation is often achieved by promotional activities, such as a big sale. The circumstantial differentiation consists of things like a historical monopoly, or some kind of personal connection between the consumer and someone in the firm, or a convenient store location etc’. However, the differentiation we want to focus on is the strategic differentiation, such that provides a long lasting, circumstance-crossing advantage.
Is differentiation absolutely necessary? In any case where the consumer must choose between options – the answer is definitely yes. Why? Because the consumer chooses between alternatives on the basis of the differences as he or she perceives. Zoom-in on that sentence for a second. Do not fall into the most common trap of all: the consumer makes choices according to his perception of differences between alternatives, and not on the basis of what he values most in a product of that kind. More often than not, most of the available options in the market offer their consumers ‘what matters most’. Certainly, when the consumer purchases a car, ALL of the brands and models that are considered are believed to provide those things that are important: affordability, reliability, safety, comfort, etc. The consumer’s choice of different brands and models could very well be based on something secondary in importance, such as the design of the tail lights or some gadgety features.