James Daunt’s first day on the job kicked off with a bang. His first task was to work out how to get his company out of an existential crisis.
UK bookseller Waterstones had hundreds of physical stores and was investing heavily in its online presence. Threatened by Amazon, Waterstones followed a strategy of building a massive online offering and cutting prices.
The only problem: The strategy wasn’t working.
Losses were mounting, the company was short on cash and Amazon was growing at a rapid pace.
As the CEO, James came to the realisation that Waterstones couldn’t continue copying its competitors. He had to make a big radical move for the company to survive.
James decided that Waterstones’ best chances lay in doing the exact opposite that their online competition was doing. In the process he built an irresistible proposition that to this day Amazon struggles to compete against.
Going against the grain is going against human nature. We’re born to fit with our societal norms. There’s safety in numbers. To be different to the majority means to take the risk of looking foolish.
Companies are groups of humans as well. When they see a competitor do well, the urge to go in the same direction is strong. In the bundling and unbundling piece, we discussed how this crowding of company product offerings leads to less choice for customers and an opportunity for a savvy competitor to do well by being different. This article is part 2 of business differentiation, in which we’ll explore less drastic business strategy changes that can still lead to success. We’ll cover how tweaks to a product’s perception or a brilliant customer experience can drive growth for a company.
Two ways to differentiate
Part 1: Differentiating the Product and creating Perception Tweaks
“We are all in the gutter, but some of us are looking at the stars” – Oscar Wilde
Our own perception influences how and what we buy. We make 35,000 decisions a day. A great deal of these are buying decisions. Perception is always involved in those decisions. Subconsciously we think “this product is not for people like me” or “this doesn’t suit my needs” or “this totally resonates with my values”.
Whether the product itself is different or not is to some extent irrelevant. It’s how we position the product to our customers that matters. Knowing that there are very few products out there that will resonate with everyone. By focussing on one particular target customer, you’ll almost certainly alienate another type of customer.
It’s why thousands of Americans burned their Nike shoes in protest when Nike endorsed Colin Kaepernick who is a symbol of the Black Lives Matter movement. Nike’s move delivered a 31% surge in sales almost immediately after this. No other major brand had aligned so closely with that movement before this.
But brands don’t need to be as radical as Nike to resonate with customer groups. Sometimes a relatively simple change can have a big effect. A tweak of the words you use to describe the product might be all you need. Other times you can adjust a feature to create a different product experience.
Let’s dig into a few examples.
Going all-in on airy shoes
Shoes have been around forever. And there are very few shoe brands that truly stand out from the pack. Big shoe brands spend billions in advertising every year, but at the end of the day, apart from the design and the brand, there’s not a ton that differentiates one shoe from another.
Unless… innovation happens.
Geox, the Italian shoe company, has doubled down on a particular customer need: providing breathable shoes.
Their entire product range (not just shoes) is built using high quality breathable materials and ‘breathability’ to the extent that the Geox brand is now intrinsically linked to ‘breathability’. Who actually wants breathable shoes? Those who might get sweaty or hot feet. Or just those who want maximum comfort. Some people might care more about designs that Geox doesn’t offer. But Geox doesn’t care about winning those people as customers.
It’s customers who care about being comfortable in their shoes who are their target market. And that’s the reason why customers who seek that solution go to Geox for their next shoe purchase. Are they the only ones to offer this? No, many shoe companies have got product lines that aim to solve this customer need. But Geox has centred the whole company around breathability. Because it’s gone all-in on this, breathability is also what makes it stand out amongst their competition.
Creating a whole new category of differentiation. One chocolate bar at a time.
How do you choose between chocolate brands? My guess is that most of you choose on taste/flavour and possibly price. After all, what else is there to distinguish a chocolate bar on? Yet Dutch brand Tony’s Chocolonely has created a third factor to give us food for thought:
“Whether slave labour has been used in the cocoa growing process.”
Slave labour is commonly believed to be a thing of the 19th century. But Tony’s has been vocal that this is not the case. Their cocoa comes from 100% slave free plantations. No other chocolate brand talks about this, giving Tony’s the freedom to anchor themselves in their customers minds on doing good in the world. Just like Geox, Tony’s has centred their whole company around one message: “Ending slave labour.”
Tony’s strategy is powerful because they’re creating awareness about slave labour in the chocolate industry and going for PR moves that generate conversations. Those conversations naturally bring up the brand thereby driving further acquisition.
Tony’s is growing fast. And competitors have been slow to catch on which is giving Tony’s a monopoly on guilt-free chocolate. Completely guilt-free, until you remember your waistline.
When quality is just not good enough
Quality products are everywhere. I can’t think of any company that rely on saying that they’re the best to be truly different.
Harry’s, the subscription shaving company, tries to do this by offering a 100% quality guarantee on its products. Their 100 year old German factory produces its blades and whilst Germany is known for quality products, it’s not enough to stand out. Because Gillette highlights the quality of their razors too.
So how is a new customer meant to choose between the two brands? Both companies are targeting a broad swath of customers. The answer lies in niching down. And there are surprisingly large niche audiences who are underserved where others are already making headway:
‘Creating’ a razor for black men
Black men suffer from razor bumps more than any other ethnicity because of their curly and wiry body hair. Experts recommend that they don’t use multi-blade shavers to reduce razor bumps. Yet surprisingly few razor companies focus on black mens’ needs even though their products may be suitable. Gillete sells a safety razor that should reduce razor bumps, but the company seemingly does little to customise their products to black men.
Instead, the space is likely to be filled by companies like Bevel who are a personal grooming brand specifically created for Black men. This article makes for a great read on why black men have been underserved in the grooming space. As the safety razor shows, a 100+ year old product can still work to suit certain customer needs. Bevel focuses on the perception of its product built for Black men. Bevel innovated on how it presented itself to its target audience. They nailed how they hone in on their customers’ needs to differentiate their product.
These opportunities are everywhere. Customising personal care products is a trend that’s happening across all manner of customer groups.
Building differentiation into your business from the start: Airbnb
We’ve looked at differentiated physical products. But what if you don’t ‘own’ your product but are reliant on other companies’ products. The travel accommodation space is one of the most cut-throat sectors. When your competitors (Booking.com, Expedia et al) have carved up the hotel market for themselves, how do you compete?
Source differentiated suppliers.
Airbnb’s version was to offer short let rooms and homes when all other platforms were doing hotels.
At the time it was a completely unique supply side of their marketplace you couldn’t find anywhere else. If you preferred to stay in an apartment or a house instead of a hotel, you went to Airbnb. More recently competitors have started listing more of these properties, making Airbnb’s advantage less unique. But in the early days, Expedia et al did not have the same supply and it was a source of competitive differentiation for the company.
Differentiate your Customer Experiences
Whilst a differentiated product and the perception of it can be one way to grow, the other way is to be so different in the customer experience (either pre- and/or post-purchase) that customers will rave about you to others.
Creating great customer experience is an underappreciated method for differentiation. Speaking personally, a brilliant customer experience is often why I prefer shopping locally at mom and pop stores than at big department stores. It’s this personalised experience that humanises companies and builds relationships with customers.
Beating back Amazon
It’s also how Waterstones beat back Amazon. In the early 2010s Waterstones was being crushed by Amazon in physical and ebooks. The UK bookseller invested heavily in its online offering and cut prices to compete with the e-commerce giant, but it still struggled. It couldn’t compete with Amazon’s near limitless warehousing space and low prices.
What saved Waterstones was a relentless focus on their in-store customer experience. Since Amazon only sells books online, Waterstones created a locally adapted inventory of books for each of their individual stores. Stores featured a curated book inventory that catered to local tastes and demographics. For example, areas with young families were stocked with age appropriate books whereas areas with pensioners may have had more history books. This curated and decentralised approach stopped the decline and saw Waterstones become profitable again. Why? Because it served customers needs and gave them a better experience than shopping online. Helpful and empowered local staff can help find the books customers are looking for. Waterstones can do this much better than any ecommerce company.
Competing on price or copying the strategy that competitors are following is unlikely to be a winning strategy. Understanding customer needs, focussing on your business’s strengths and what the best customer experience is will create a truly differentiated offering.
The hyper-curated bookstore
Staying on the same page, I recently discovered “The Painted Porch”. It’s a bookstore by Ryan Holiday which only features a select number of curated titles. Rather than focusing on popular books, they only stock those that Ryan recommends in his regularly updated reading list. In our lives we’re used to a huge amount of music, movies, books and social media content flooding us. Overwhelmed by choice, humans need a way to sift and filter through this content and Ryan’s offering just that: a highly curated list of books that he’s personally read and recommends.
It’s a variation of the Waterstones strategy with a different form of curation. Customers shopping there will know that all books have been read by Ryan and are a worthwhile read.
Unlimited free repairs: Patagonia
Clothes rip, zips break. Any well-worn piece of clothing is at risk of damage. But when it becomes unusable, most clothing brands do not offer repairs. And if they do, they often charge for it. With the exception of Patagonia.
Any Patagonia product is covered by their Ironclad Guarantee which includes free-of-charge repairs. It’s perfectly aligned with the brand’s sustainability focus and its customers’ environmental concerns. But surprisingly few other brands have followed this strategy. Because it’s so uncommon, the guarantee also acts as a brilliant differentiator and a talking point for happy customers.
Also somewhat counterintuitively, the fact that Patagonia even offers this service highlights that its clothes are of excellent quality. If they were poor quality, this repair service would cost them a ton.
The attentive among you may be thinking, is this not bundling? How is this different to Patch’s aftercare service? And the truth is that it’s not that different, which is why the bundling strategy can work really well with a differentiating customer experience. Although not in this case, bundling and unbundling can also work well with product/perception tweaks.
Changing the broadband experience
What’s the worst thing that can happen to your home broadband connection? Probably losing the internet connection when you need it most.
Until recently, no broadband company has offered a broadband guarantee to consumers? Technically it should be feasible to offer a 4G dongle in case the broadband line disconnects. But outside of business tariffs, it hasn’t been on the cards until recently.
British telecoms giant BT introduced an answer to this problem: Hybrid Broadband. It’s basically broadband and 4G connection in one packet. If broadband, for whatever reason, loses connection, 4G will kick in to give the customer (almost) seamless internet connection. The prices are premium, but if you value 100% connectivity, then you’re probably going to pay for it.
Broadband startup Cuckoo has taken a slightly different route. Constricted by having fewer resources than BT, they’ve made it their mission to offer the best broadband customer experience. That includes offering monthly contracts and no loyalty penalties (i.e. all customers get the same price). More recently, they’ve introduced guaranteed internet within 24 hours of signing up in which a customer has the option to receive a 4G dongle to decrease the time to get internet. The use case is slightly different to BT’s solution as it targets new customers signing up.
Both BT and Cuckoo hope that their respective value propositions will meet the needs of customers who are risk-averse and would prefer peace of mind.
So, how do you build your own differentiation strategy?
Successful differentiation is simple, but not easy. It all starts with a good understanding of your ideal customers’ needs. Next up is identifying where there is a gap within your offering that is stopping those valuable prospects from turning into customers. Interpreting the competitive landscape pragmatically is the final piece of the puzzle.
Once you’ve mapped the above out, you should look at how your product needs to stand out. Do you need to adjust the product or service to match a particular pain point? Or is it a perception tweak that will differentiate it from the other solutions out there? Perhaps your product is fairly commoditised and developing an amazing customer experience is where you should focus?
Whatever your product ends up becoming, the key is that your solution needs to be noticeably different to your competition’s offering AND it needs to solve their main pain point. That is when you’ll unlock business growth.
It’s a tough exercise, but that is why few competitors will have the discipline and focus to analyse the market like you will. True differentiation can deliver outstanding and long-lasting growth. It’s how Waterstones stopped one of the largest companies in the world from gobbling up more of its market share.