Every entrepreneur believes that their product or service is different, and that every customer will quickly see the advantage over competitors. Yet true product differentiation in the eye of the customer is rarely achieved. According to a survey by Bain & Company a while back, 80 percent of businesses believe they have differentiated offerings, but only 8 percent of customers agree.
To highlight the impact of being perceived as differentiated, other experts project that businesses with truly differentiated offerings have an 80 percent chance of long-term success, whereas companies with 'me-too' customer perceptions have only a 20 percent chance. Differentiation is a key requirement for a successful startup rollout, and must be sustainable to keep ahead of new competition.
Since I'm a fan of real-world feedback, I was intrigued by the insights on differentiation in a new book, Roadside MBA: Back Road Lessons for Entrepreneurs, Executives, and Small Business Owners, by Michael Mazzeo, Paul Oyer, and Scott Schaefer. As well as having great academic credentials, these guys recently traversed the USA getting lessons from real small businesses.
Here are a few of their conclusions relative to product differentiation, supplemented by my own recommendations from experience and other experts:
Of course, working on perception can backfire if the differentiation reality isn't there. Remember the old saying, "You can put lipstick on a pig, but it's still going to be a pig." Like a damaged reputation, a discredited differentiation is extremely difficult to turn positive.
Real data and customer testimonials say it best, such as get it done in half the time, or half the cost, or comes with a 5-year warranty. In my experience, numbers less than 20 percent are not enough, since small numbers are not likely to overcome the inertia and learning curve required of most customers.
One business visited on the road had successfully implemented a product-differentiation strategy to appeal to the 20 percent of their clients who were the most profitable, and discourage the 80 percent who were more costly. They noted that customers' loyalty grew with their real preference for the unique product features offered.
We have moved from the era of mass customization to collaborative customization. Today, differentiated companies enable customers to determine the precise product offering that best serves that customer's needs. For example, MakeYourOwnJeans encourages customers to tailor-make jeans dynamically per their specifications.
Successful product differentiation requires a conscious and continuous effort, including listening on the right social media channels, being consistently helpful to your customers, and continuous innovation. But the results can put you in that coveted 8 percent that customers remember for real fun and profit. Isn't that why you signed on to the entrepreneur lifestyle in the first place?