November 21, 2011 Posted by Rikard Svendsen in Business Challenges

In search of Differentiation

Price, Quality, Service, Design?

Where can companies find a competitive advantage in today’s market situation? A number of strategies have had their day in the sun, but as they get bench-marked one by one differentiation becomes increasingly difficult.

Differentiate on Price?

Distribution systems, outsourcing and location can and have all been bench-marked by the three major supermarkets in the UK. The other problem with competing on price is that price can only go so low. Price-wars have been known to happen when a company cuts its prices so low that it looses money, but attracts customers to itself and away from the competition. Profits have to be made and a company can only underbid its competitors for so long.

Differentiate on Quality?

In the 1980s the Japanese started to focus on quality to differentiate their products. This was referred to this as ‘Kaizen’, when you try to make your product a little bit better than yesterday. As a result Japanese products flooded the European and American markets. Consumers had little problem accepting better products at a lower price. This led to companies focusing on total quality management (TQM), but ‘while everything may be better, it is also increasingly the same’ (Kunde, 2002).

Differentiate on Service?

What service can you find on ‘The World’s Favorite Airline’ that you can’t find on Virgin Atlantic or Singapore Airlines? They all have online booking, lounges, sleeper beds and in-flight entertainment.

Differentiate on Innovation?

So what about innovation? Surely it must be an area where a company can compete? Daniel Muzyka16 (1994), The Dean of Sauder School of Business at University of British Columbia wrote in an article in the Financial Times that ‘only the constant pursuit of innovation can ensure long-term success.’ If we look at British Airways who took a financial risk by innovating a sleeper bed for their business class, we can see that it turned out to be a success. Customers where happy to foot the extra cost to compensate for the reduced number of seats. So BA would now seem to have a competitive advantage over their competitors being the only one offering sleeper beds on long haul flights? Afraid not, the reality is that before you could blink all the other major competitors also had their version of the sleeper bed (without the cost of innovation research or the risk of failure). So why innovate if you can benchmark at the speed of light?

So how do we know which one to pick; if all aspects like features, technology, price, service and design are identical? When everyone’s basically offering the same product/service; with only the name being different?

Apple's 'Creative' Brand From Innovation to Imitation