The science of product differentiation
Asequel to my article, Profiteering During a Downturn, this article unsnarls my second strategy businesses should adopt to improve competitiveness, returning more cash to shareholders even during an economic downturn. The strategy is Product Differentiation.
Products and services are differentiated when customers perceive a sense of uniqueness, which leads to a willingness to pay a little bit more, despite the existence of close substitutes. The extra value the product/service adds could be real or imaginary but that doesn’t matter, so long the customer is willing to pay the premium.
Entrepreneurs and business leaders should, therefore, focus on improving value perception by customers. Customers need to smell, feel and see the extra value you are adding during this slowdown. If they do, it will be easier to ignore your competitors’ offerings, and go for yours, even when priced slightly higher.
From complex engineering solutions to commodities bestowed upon us by nature, there is absolutely no product that you cannot differentiate, then charge a little bit more for. Even a commodity such as water! That is why a customer will walk into a store and pay for a smaller bottle of Voss Water (0.85 litres) which costs about USD40 over a slightly bigger 1 litre bottle of Evian water which costs about USD2. Voss can pull that off because there is a perception of “more value” attached to their product despite the fact that both products do exactly the same thing - quench thirst.
Here are some ways businesses can differentiate their products & services, enabling the opportunity to charge a little bit more
a. Provide extra service – Right now, customers are not so keen to step out. Perhaps you can improve the ease of ordering your products & services; offer home delivery, offer contactless transactions etc. A hotelier friend of mine in Kenya told me his relatively expensive property has about the highest occupancy level in the area because he offers free airport pick-up & drop off. His property is quite popular among guests who get full refund for hotels costs and per diems for other expenses including commuting to the hotel & back. I felt that was very smart of him.
b. Improve your product quality – A slight improvement in your process could result in premium products. This helps you charge customers more, so you are better off financially. For example, a poultry farmer picking up eggs 2-3 times a day reduces bacteria access to interior of eggs via microscopic cracks, improving the quality of eggs. Bakers recognise premium eggs and go for them as it improves the quality of their bakes.
c. Review your Price – If you are unable to improve the quality of your product and the demand for the product is elastic (i.e. a small decrease in price results in a greater than normal increase in quantity demanded), consider a slight drop in price – that is also differentiation via pricing strategy. You may offer something free
d. Improve your packaging – The outcome of an extensive research in Karachi is that “Packaging is the most important tool in the marketing of most products”. A simple better look than competitors’ products could improve your sales
e. Highlight hitherto ignored features of your products – Mentioning the uniqueness of your product is a signal of more value which some customers may be willing to pay for eg an insurance company that processes claims within a record time could say, “All Claims Settled in 1 day”
f. Highlight flaws in features of your competitors’ service – If you are the only bank that provides digital branches for premium customers, who you make more money from, you may advertise, “the only bank that that offers Phygital banking to our premium customers”
Differentiating your product is a science. If you are deliberate about it, the outcome is constant – higher priced products.
Look out for my next article, Solving the right business problems in 2021, on the 10th December 2020
About the Author:
Akin Monehin is a thought leader, speaker, and business strategist. A 2015 recipient of Choiseul Institut France’s Award of Top 100 African Business Leaders under 40 Years old, he hosts the thought leadership conversation on Youtube, “Make or Mar Moments with Monehin”. He is privileged to have worked in over 10 countries including French and Arabic speaking ones and in leading organisations like British Airways, Virgin Atlantic & Nigeria LNG Ltd. He currently works for an International Oil Company (IOC).
Akin can be reached on akin. monehin@chicagobooth.edu Views expressed in this article are personal and do not represent the views of any institution .