Nyman MediaDifferentiation

What does differentiation mean, and when should you pursue it?

As a general rule of thumb, differentiation is required in a crowded market. It’s the idea of creating specialized products that gain competitive advantage with a particular segment of the market.

Differentiation makes a product or service more desirable to the target market.

In a rapidly growing market where all the demand has yet to be fully satisfied and there is still a virgin territory to be conquered, there’s usually enough space for multiple players – even if they are targeting the exact same consumers with the same offering.

For instance, there are entire industries that have been tainted with a bad reputation such as real estate, financial services, chiropractors, dating coaches, etc. In such cases you’re not just looking to differentiate yourself from a certain set of competitors, but from an entire industry.

Another consideration is that of consumer behaviour and the typical path to purchase. In circumstances of first come – first serve, and consumers display little consideration behaviour, differentiation is not all that necessary. In fact, sometimes it’s preferable for your business to resemble another one or carry the connotations of a certain industry. This is often the case when it comes to services that are urgent in nature (plumbing, repairs, etc.) or more generic commodities.

It should be also be noted that there is a common misconception about when points of differentiation should be set.  Some marketers think this should be done at the very start. In reality, however, a differentiation angle does not need to be set in stone. In today’s data driven world, you will learn over time which particular attributes your customers appreciate, and what distinctions your customers actually pick up on and value. In other words, it is perfectly acceptable to start off with softer differentiation and a more general, commoditized product or service.

Which Differentiation Factors Should Be Used?

There are a number of dimensions by which you can achieve differentiation.

For example, you can address:

  1. Product: Emphasizing features, the quality, durability, technical aspects or style
  2. Customer service: The ease of ordering, speed of delivery, installation, customer onboarding, or in how you handle repairs, customer consultation and maintenance.
  3. Personnel: Competence, responsiveness, communication skills, or their sheer courtesy
  4. Channel: Access to certain sales channels, or mastery of them
  5. Image: Quality and distinction of customer-facing media assets; including websites, events, and campaigns. (This is usually what marketers are compelled to start with, as it’s the most tangible and apparent facet of your marketing strategy.)

With all these factors and more, it’s worth mentioning what qualifies as an element of differentiation.

An element of differentiation is worthwhile if it is distinctive and unique. It should also speak to the superiority or the favorability of your brand and your products. Lastly, it needs to be easily communicable to your target audience.

Positioning

Once a segmentation strategy and personas are clearly defined, positioning begins.

Positioning is simply about creating a distinct, unique competitive position in the target customers’ minds. In other words, what does your audience associate your brand with; and how do they view your products and your business?

Again, this can vary across many dimensions:

  • Product attribute: Volkswagen – Think Small.
  • Product benefits: Dollar Shave Club: Shave Time. Shave Money.
  • Product use: Have a break, have a Kit Kat
  • User: “The Few. The Proud. The Marines.”
  • Competitor aspects: Rent-a-car: We Try Harder
  • Quality/price: Gilette – The Best a Man Can Get

Market Intelligence

At its core, market intelligence uses multiple sources of information to create a broad picture of a business’ existing market, customers, problems, competition, and growth potential for new products and services. Sources of raw data for that analysis include statistics, sales logs, surveys and social media, among many others.

Successful market intelligence answers concrete questions about current and potential customers and competitors, and helps the company determine internal goals.

Statistics

The first step is to find reliable statistics on consumer behaviour and macro-economic trends in your industry.

  1.         How much do consumers spend in your product category? How much is spent per  capita?
  2.         How frequently do consumers purchase the product or service?
  3.         Is the market growing, and if so, how fast?
  4.         What’s driving the growth?
  5.         Which factors correlate most closely with the growth of your industry?

For more established businesses, a sales force can be an invaluable source of information about market trends and the factors that drive them.

Survey Data

Source real world data to identify whether or not your offering resonates with the personas you have outlined. Typically, this is done by collecting data from a target group. The key here is gathering structured data, (i.e. be consistent in how the questions are put forward).

Large corporations are generally more adept at market research and gathering intelligence, as they already have the means and the manpower to do so. While many start-ups recognize the need for data and even take it upon themselves to gather primary data, they frequently fail in gathering structured, consistent data in an organized fashion.

For instance, when asking 500 people whether or not they will buy a certain product, many will answer in the affirmative. However, if the question is framed: “How much would you spend on XYZ product?” — you are asking and receiving an instant barometer on the real interest people have in your products or services.

Real World Proprietary Data

Note, that you are very unlikely to see the expected performance and behaviors from your target audiences once you have real world proprietary data. Once you have real world data, you will evaluate these and refine your audiences yet again.

Remember, marketing strategy is a process.

Lifetime Value (LTV)

One of the most important factors in your marketing strategy is the lifetime value of your customer.

Know it, and you’ll know what’s an acceptable cost for per acquisition for your marketing campaigns.

Fail to know it, and you may end up overspending on your campaigns and bankrupting your business.

The definition of LTV is as simple as the concept is critical.

The lifetime value of your customers is merely the total sum of what a consumer spends on your products and services throughout the lifetime of his/her relationship with you.

Notice that you’ll need to continuously analyse and assess what this figure might be. The longer you are in business, the higher the LTV tends to be. A declining LTV is a great indicator that your business is slipping. Customers  may be switching providers, the general industry may be maturing or declining, or there may have been a shift in the greater economy.

For start-ups, you’ll often find that the LTV keeps growing as you accrue data. It’s tempting to keep doubling down on your marketing efforts as you continue to acquire new customers — but beware of the inflection point where LTV finally plateaus.

Asset Audit: What Do You Have to Work With?

Resources

Make an audit of the resources you have at your disposal. You don’t want to find out three months into your campaign activities that you are lacking a professional graphic designer, a JavaScript developer, a seasoned PPC expert and an email expert.

Make sure you’re clear on your needs before you delve into any kind of on-the-ground activities.

Knowledge

Do you understand the fundamentals of each channel that you’re about to partake in?

While you definitely don’t need to be an expert on all channels (and they all run very deep), you need to have a working knowledge of what constitutes quality. Also, you’ll need to be clear on what purpose each of your marketing channels serve; both in terms of your own needs and their typical utilization.

Budget

This is a big one. Be clear on how much money you are actually willing to commit to getting digital marketing to work for you. How do you approach this? First of all, what does your cash flow (or expected cash flow) allow you to invest?

Second of all, how much data do you need to optimize your campaigns?

To use a crude number, you need a bare minimum of 30 sales per month per channel to actually find enough data to optimize your campaigns – and this is true regardless of the channel.

Thirdly, you obviously need to budget for quality staff. It often helps to start with the budget estimation so you can use the budget figures at hand when actually sourcing contractors. Traditionally, media agencies frequently charge a percentage of media-spend when calculating their fees. This is, however, rapidly becoming an outdated billing metric; often bloating the budgets. That said, it does give you a feel for what professionals might charge for managing your campaigns.

Allowing for a 10% management fee should give you a feel for what the manpower costs will be.

Do You Need an Agency?

This is a big decision to make, and there are many factors to consider. Here are some questions to ask yourself:

  1.         Do I have the required skills in-house?
  2.         Will I benefit from developing these skills over time?
  3.         Are there specialized agencies that supports my vertical and business model specifically?
  4.         How long will it take for me to upskill my workforce, and how much would it cost versus hiring an agency?
  5.         Do I already have a baseline of performance or are we starting from scratch?
  6.         Can I get contract only for a specific time period?