Differentiation vs. Uniformity

I recently stumbled across the book “Different: Escaping the Competitive Herd” by Youngme Moon. It's one of those thought-provoking books. A major takeaway for me is that heightened competition often leads to products and services becoming more alike. One might think that differentiation is crucial, particularly in highly competitive markets, but why is this not the case?

Uniformity

There are various reasons why offers are converging and becoming “one-size-fits-all”.

Alignment of Offers

Companies strive to match their competitors. When a competitor offers unique functions or services, these are often replicated and introduced. This is largely driven by sales teams, who don't want to appear inferior—even if the feature or service has minimal importance to the customer.

Scaling

For most start-ups, especially in digitalization, scaling is a mantra pushed by investors. Founders and investors alike aim for growth, and scaling indeed makes sense. However, this often means that customers end up using a nearly identical product. Once the company moves beyond the start-up phase, a vast number of customers are using the same solution. Though many solutions can be customized, sticking to the “standard” is often recommended. This approach is advantageous for operational or administrative processes, as adhering to “best practices” is beneficial. But for market-oriented tasks and processes, this could mean missing out on differentiation opportunities.

Innovation by Suppliers

In the software sector, innovation is often left to the suppliers. A good example is a CRM provider focused on the financial sector. They offer a module that analyzes a customer's investment portfolio and provides tailored recommendations for client interactions. While this solution is both intriguing and practical, its widespread adoption does not enable financial service providers to stand out.

Personal Risk Reduction

Generally, aligning with the competition is often a deliberate strategy. Differentiation comes with risks, while alignment is easier to justify to stakeholders. This is evident in the popularity of large consulting firms, which mitigate risk for decision-makers through best practices and slide reuse. The same applies to hiring industry-experienced employees; it shortens the learning curve but only matches the competition’s level.

If you fail by aligning with the competition, you can blame the saturated market without having to blame yourself. However, failing while trying to differentiate often leads to being blamed for poor decisions. Many prefer to avoid this risk.

Being different

As previously mentioned, “being different” carries risks. Yet, there are always companies that embrace distinctiveness and achieve success because of it.

Positioning

Clear positioning involves making definitive choices about your identity and offerings. This demands transparent communication, fully backed by your team. Defining the target audience with precision and having the courage to decline opportunities is crucial. Luxury brands exemplify this, though many are increasingly compromising their positioning through various strategies.

First provider of external innovations

One of my former employers distinctly positions itself as an innovation leader. Whenever one of the major payment or credit card network launches a new innovation, they aim to be the first in Europe to offer it. Other issuers eventually catch up, but by then, they're already working on the next innovation, keeping them consistently ahead of the competition.

Use of “construction kits”

Especially in the software industry, modular “construction kits” are becoming more prevalent. These allow for the creation of customized solutions that promote differentiation. It gets even more interesting with low-code or no-code solutions, as they enable companies to develop or configure their own unique solutions, setting themselves apart from the competition.

Innovation = something new

The riskiest approach is undoubtedly to develop and introduce innovations independently. This encompasses not only product innovations but also innovations in services, management systems, or customer touchpoints. For instance, to enhance the CRM provider's offering, a financial services provider could create its own benchmarking system or gamify customer interactions, providing unique recommendations.

The critical question is how long it takes for such proprietary innovations to be copied by competitors. While patents offer some protection, there are usually alternative methods to replicate offerings, particularly when it comes to features and services.

So what?

Thoughts are still swirling. Naturally, a balance between best practices, learning from competitors, and true differentiation is essential. For mass-produced goods, the demand for innovation might be low. Yet, consciously differentiating through innovation can be worthwhile. Differentiation is particularly vital in high-margin segments. Companies in this sector should refocus on innovation and create room for controlled experiments. Innovations should be assessed primarily on their potential for differentiation and uniqueness. This is the only way to stand out from the market’s uniformity.