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COLUMN NOVEMBER/DECEMBER 2015
 
Markus Anschober on ...
 

FOUR REASONS FOR NEW

STANDARDS IN DIFFERENTIATION


Or: Why we should not close our eyes to the “realities” around us


The fact that a company needs to overhaul its differentiation strategy first becomes clear when it has recognized the radical developments of recent years and faced up to the realities surrounding it.



Cheaper than the competition? A ruinous mistake!

Many companies flounder when they attempt to combat price competition with efficiency programs. They would be better served using a relevant differentiation concept to position themselves as valuable – not cheap – in the eyes of their customers. It sounds easy, but it isn’t. Differentiation requires multilevel thinking and, in particular, the clear recognition of certain realities.

Reality 1: It all hinges on a sustainable business logic

Our experience from surveys and projects shows that long-term company success, and the profit logic that goes with it, is fundamentally based on the selection and coherent development of the “right” business model. When searching for a sustainable profit logic, companies must therefore first take a systematic look at previously successful as well as unsuccessful models in their respective markets. Building upon that, the second step will be to ask themselves the following questions in order to more effectively decide which approach will strengthen their current profitability construct:

  • The evolutionary approach: Are we focusing on a dominant business model type and trying to be BETTER than the top performers?
  • The revolutionary approach: Should we focus on a DIFFERENT, adapted business model type that can make advances in niche markets?
  • The disruptive approach: Or do we go with a COMPLETEY DIFFERENT type and try to outflank the competition by essentially disabling existing market mechanisms?

The strategic discussion of selecting the right model needs to be juxtaposed not only with the question of sustainability, but also with the opportunities for uniqueness.

Reality 2: The true opportunities of digitization have not yet been acknowledged

Increasing numbers of studies clearly illustrate that a new business age is upon us and there are three forces responsible for it:

  1. the ongoing and exponential development of computer technology
  2. the enormous quantity of digital data
  3. and the innovation opportunities surrounding artificial intelligence.

These forces already provide us with breakthroughs in our daily lives that we couldn’t have even imagined five or 10 years ago. Still, not many companies seem to have noticed the (digital) signs of the times. Much of what we see would indicate that the opportunities of digitization are only thinkable against the backdrop of increased efficiency and, among other things, flexibility in production (Industry 4.0). Those are certainly two very important aspects of the discussion. Yet companies too seldom ask themselves, “Which opportunities might come from digitization in terms of valuable and sustainable product innovations?” This is surprising, especially given that intelligent products will be required in the future in just about every imaginable sector of the economy.

Reality 3: A successful differentiation strategy needs to be open

Our previous understanding of strategy work, often carried out by an exclusive group of “selected heads” behind closed doors, has long been rendered obsolete, but even this bit of important news has gone unnoticed in many corners of the globe. Roughly 90 percent of drafted strategies are never even implemented. The main reason for this is that the people who develop strategies do not have the appropriate expertise to be doing so. They are overwhelmed by the increasing complexity of the job: vanishing industry boundaries, rapidly changing market dynamics, and the seemingly impossible task of keeping up with fast-paced technological developments. And yet more and more companies are experimenting with “open” approaches to strategy and innovation work. They have understood that they need know-how and skills beyond their core business in order to truly forge new paths. It is of course important to look inward and to find where the real areas of competence and capability lie, but looking inward is no longer enough! Generating ideas also requires us to look outside for inspiration.

Reality 4: Emotional differentiation is a big part of the equation

Though it is well known that 80-95 percent of our decisions (and thus our purchasing decisions) are made unconsciously, many companies are still convinced that customers consciously decide for or against a certain product. This falsehood is often reflected in the erroneous choice of promised benefits for a given product, in “unfavorable” pricing logic and in a subsequently inappropriate approach to sales and marketing. Companies therefore need to be asking the questions, “How should, or how can, a brand, product or service be positioned in the minds of consumers?” and “How do we effectively incorporate the latest results from emotions research, which focuses increasingly on limbic (emotional) instructions from the brain?” e.g. if you touch it, you probably want to buy it. Only if a company makes a product’s quality implicitly felt and “tangible” will it be able to win over the hearts of consumers.

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                                              The only thing left to say is:
                                    Be different! Think different!

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Unstable market structures in recent years have led to previously inconceivable competitive pressures. Increasing numbers of companies are being forced to offer better quality at better prices in ever-shortening cycles.

“But just being cheaper than the competition is no solution,” says Markus Anschober (Managing Partner IMP Austria) in our latest column.

 

 

 

 

Markus Anschober

Director and Managing
Partner, IMP Austria

 

 

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