The wine industry is a highly competitive, even cutthroat market. Though it experienced impressive growth in the ’90s, by 2001, it was in decline. The U.S. vineyards based out of California and Italy clawed at each other for an ever-shrinking share of the market through various tried and true strategies. Some companies touted the history of their vineyards, pointing to the centuries of experience they offered. Others highlighted the numerous awards they received over the years. Some bragged about the earthy or fruity undertones of their wines. While many tried these strategies, no one seemed to stand out over the crowd.
Now Australia might not seem as illustrious as Italy, France, or Napa Valley, but a winery from Down Under turned out to have the winning strategy. The brand Yellow Tail came up with a clever marketing strategy that struck a chord with customers. The Casella Family bought their own vineyard in 1969 but didn’t launch Yellow Tail until 2001. It was through differentiation strategy that the Casellas found success.
To gain a competitive advantage, Yellow Tail ditched the usual materials about vineyard prestige. Instead, the Casellas removed the complexity of enjoying wine, replacing it with adventure and approachability. They listed a price of 10 dollars a bottle, which was more expensive than budget wines but far lower than the fine wines for true wine enthusiasts.
The results of this product differentiation strategy speak for themselves. While Yellow Tail only expected to sell about 25,000 cases in their first year, they ended up selling nine times that amount. In fact, their sales reached 25 million cases by the end of 2005. This differentiation strategy example shows the power of the concept.
Without a broad differentiation strategy, companies risk losing valuable market share to their competitors.
In this article, learn how to stand out in a crowd successfully by:
- Discovering more about what differentiation strategy is and how it works
- Learning three proven strategies for differentiating yourself in business
- Receiving guidance on how to start using differentiation strategy in your company today
What is Differentiation Strategy?
Differentiation strategy is when organizations offer something that their competitors don’t. This can include products or services that are substantially different from anything else out there. The goal is to separate yourself in a crowded marketplace by providing something no one else can. Differentiation strategy doesn’t allow limits and boundaries to inhibit growth. If anything, product differentiation strategy states that there are no limits at all. As Richard Bach once said, “Argue for your limitations and sure enough, they’re yours.”
Many executives genuinely believe that they have an innovative product ready to offer to the public. They think what they have is novel and unique, but the reality is they have fallen behind. If you think you can be successful in untapped markets by providing something that’s only 10 percent better than your competition, you’re in for a rude awakening. Differentiation strategy aims to reach unutilized potential, but it only works when implemented correctly.
Below are three overlooked but practical ways to create a product or service that is unquestioningly unique.
1. The Six Paths Framework
Differentiation strategy closely follows the Blue Ocean strategy first described by W. Chan Kim and Renée Mauborgne. This innovation strategy essentially focuses on customer needs to create a new market free of other competitors. Instead of fighting in a bloody red ocean full of other businesses, companies that focus on product differentiation have a blue ocean all to themselves. They create this blue ocean by introducing innovative new products and services no one else has.
One of the components of developing a blue ocean strategy is the Six Paths Framework. Looking at the Six Paths helps business leaders identify where possible blue oceans exist. As you do so, you’ll be able to create a broad differentiation strategy that elevates your business.
The Six Paths are as follows:
- Alternative Industries: This path doesn’t limit business leaders to only looking at their own industry for ideas. Innovative products and services can come from anywhere. Following this path looking at other industries and figuring out how what they offer can apply to the industry you’re in. They don’t offer substitute products but rather an alternative.
- Strategic Groups: This path stays in your current industry by looking at two specific dimensions: performance and price. As with any industry, consumers will often trade up or down on a strategic group depending on any number of factors. By pinpointing why customers do this, you can determine what might be a viable strategy for product differentiation.
- Buyer Groups: This path focused on the chain of buyers for a product. It differentiates between users, purchasers, and influencers within your industry. Differentiation strategy looks at what buyer group your industry targets the most and instead shifts focus to how to gain value from a different group.
- Complementary Products/Services: With this path, organizations can look beyond what they initially offer to what other products or services go with it. This analysis focuses on certain pain points consumers may experience throughout their use of a product along with the context that accompanies it. Complementary items can solve these pain points, bringing even more success.
- Functional-Emotional Orientation: The fifth path looks at what consumers get out of a product from a functional or emotional standpoint. Emotional orientation often refers to extras offered with the product. Functional orientation refers to the basic functions of a product through price and utility. Comparing the two can often lead to new possibilities for differentiation strategy. This can include eliminating the emotional component to focus purely on function, or adding emotional elements to a solely utilitarian item.
- Shaping External Trends Over Time: This final path analyzes trends and their overall impact on the organization and industry. Sufficient data analysis can predict where things are going well before you hit that point. By preparing for trends early on, you can position your products to capitalize right from the start. At a time when so many companies are reactive, you can adapt early so your product or marketing strategy differentiation is out in front.
2. First Principles Thinking
To embrace differentiation strategy, business leaders need to adopt first principles thinking. This is the type of thinking that has innovators constantly asking the question, “why?” Elon Musk adopted first principles thinking and literally took it to new frontiers. He asked why space travel was so expensive and wondered if it were possible for a private company to reach the stars.
Musk refused to accept conventional wisdom and chose to blaze his own trail. With first principles thinking, he broke down the very components and systems of space travel until he knew how much every little thing cost. By lowering the cost of a rocket from 65 million dollars to 1.3 million dollars, he opened up a vast blue ocean for his company to explore.
Differentiation strategy works in much the same way. It doesn’t focus on brand loyalty or offering similar products to the competition. Instead, it looks at what conventional thinking dictates and wonders why it has to be that way. This strategy creates new opportunities through innovation. It uncovers what the core truths are and doesn’t allow limits to hold any organization back.
To adopt first principles thinking:
- Know what your core values are.
- Be brave when asking why. Don’t feel intimidated by conventional wisdom if you think outside the lines.
- Look for opportunities in unlikely places.
- Surround yourself with critical thinkers who like to challenge the status quo.
- Don’t let failures get you down. Learn from them and move forward.
3. Finding New Competitors and New Buyers
As you seek a product differentiation strategy, don’t ignore your competitors. They can often serve as an example for benchmarking purposes, which can help measure your progress. Equally important, however, is looking at competitors in different industries. Sometimes they might have a strategy that other companies aren’t using in your industry which may prove successful. At the same time, you may be competing against other products and services without even knowing it.
In one notable differentiation strategy example, Clay Christensen explains that he and his company were hired by a famous fast-food chain to figure out how to increase milkshake sales. On the surface, it would seem like a smart idea to study how other fast-food companies were selling milkshakes and try to outdo them. However, Christensen applied the Jobs to be Done Theory, which takes a closer look at what “job” customers want their milkshake to accomplish. As it turns out, the competition for the milkshake didn’t come from other direct competitors’ milkshakes. Instead, it came from other breakfast foods like bagels and bananas. For customers, it wasn’t about getting the best milkshake. It was about getting the best snack that was tasty, easy to eat on the go, and inexpensive.
In the same way, differentiation strategy should seek to build your brand image beyond your current customer base. This aspect goes further than maximizing every single product you offer. Rather, it offers supporting products that create an ecosystem customers can use. Think of the ecosystem Apple has created with its support both through products and a unique customer service experience. An iPhone works well with a MacBook, and both merge seamlessly with iTunes. It’s an approach that brings in whole new audiences that normally may not have touched an Apple product.
Discover New Oceans With Differentiation Strategy
With a product differentiation strategy, you have a chance to create a whole new marketplace where you can thrive. Take a closer look at the three areas above to see what you might be missing. Additionally, determine the differentiators that will set you apart from the competition in current and alternative industries. To pinpoint what makes you different, look at the following three things:
- Highlight your story. Is there something about your company or brand that makes it unique?
- Showcase unique aspects of your product. It might be the materials you use, the manufacturing process, its functions, or even the packaging.
- Advance your values. If your company presents values in stark contrast to others, put that at the forefront.
With this strategic and tactical planning, you’ll find yourself providing new audiences with a one-of-a-kind experience.