FAQs on differentiation from WARC podcast

Last week, Jenni Romaniuk and I were guests at WARC's podcast on differentiation and distinctiveness. Wonderful exchange of ideas, where we learned how Jenni and I got fascinated by marketing: she felt the logical consumer choice process did not fit reality, while I got intrigued by other teenagers preferring high-status brands. You've gotta listen to the WARC podcast to get the full nuances of Jenni's responses and on below awesome 7 questions from David, our skilled moderator. As this is my Newsletter, here is a summary of my points :-)

FAQ1. How big a deal is a differentiation vs distinctiveness? How important is it for a practitioner to really understand the basis of these two themes?

It's not a big deal if you have unlimited resources. Just spend all your free time and money on both. But with limited resources, you've gotta make choices. Differentiation means that your solution is seen as relatively better than the competition on a dimension that matters to customers. You can see how differentiation makes your marketing communication job easier: consumers are more likely to pay attention to your marketing actions when they perceive such differentiation - my research shows how Apple gets as much attention for simple announcements as Samsung gets for its actual new product launches. Also, differentiation creates great long-term advantages for your company: it enables you to raise your prices without much sales decrease, you convince retailers to carry you, other firms to partner with you instead of your competitors, investors to buy your stock, and the best employees to join you. But suppose that differentiation is not possible in your industry: customers won't see a difference between competing brands or it is impossible to be differentiated. In such cases, chasing differentiation is a fool's errand.

FAQ2: Can we define what we mean by differentiation?

Perceived as relatively better on an attribute that matters to consumers, such as great value and convenience for Aldi supermarkets, hugging the road for BMW, full snack satisfaction for Snickers, and all-natural delicious taste for Hellmann's. Differentiation is about being perceived by potential customers as different from competitors, on attributes that matter to consumers enough to influence purchase decisions. This difference is relative. We?don't own?any brand attribute. And you have to continue working for it - the competition aims to catch up and you have to run faster than them. There is no such thing as a 'sustainable competitive advantage', as strategy Prof Richard D'Aveni showed in his Hypercompetion book. While at Tuck, I teamed up with him to propose and demonstrate how companies nudge consumers to agree on the primary quality dimension (which just happens to be their differentiation) and its fair price in the category. However, next some competitors influence this fair value line to their advantage, while others aim to redefine the primary quality dimension altogether.

3. FAQ3: does differentiation matter? is it a good KPI?

I evaluate any KPI based on (1) its existence, and (2) its business outcome.

First, do consumers say that they see at least 1 brand in the category as different or even unique? Yes, according to research across 17 categories in the UK and Australia, published by the great Jenni, Byron, and late Andrew Ehrenberg in the Australasian Marketing Journal 2007. In their paper, they use their own method to ask consumers and contrast it with Young & Rubricam's. You have the whole spectrum from water and ready sauces to cars and computers. Now, across all these categories, guess how many respondents stated for at least 1 brand in the category that it is different or unique? ....drumroll...54%. Also surprising to me, it is rather high for so-called low involvement products you find in the supermarket, and lowest for cars in the UK (19%). So don't let anybody tell you differentiation does not exist in your category. Now, for any given brand, on average 83% of consumers do not perceive it to be either unique or different, so the article rightfully concludes differentiation is not a necessary condition to buy. However, this still allows these 17% of consumers to exert a large influence, just as the few consumers who post Amazon reviews influence the others.

Second, does differentiation matter for business outcomes? In our forthcoming publication in Management and Business Review, Oliver Koll and I analyzed 153 brands in the UK and Germany, but also Saudi Arabia, Thailand, and Indonesia across fast-moving goods categories. The differentiation question was ' “offers something that other brands do not” Two main findings. First, changes to differentiation precede changes to penetration, perceived value, market share, and customer recommendations for many brands. In other words, improving differentiation can lead to more retail penetration and customers. Second, the average impact across all brands: differentiation is the biggest driver by far for customer recommendations, just beats brand awareness in driving penetration, and is third, after brand awareness and customer recommendations in driving market share. Across all these brands, we see both awareness and differentiation as the key drivers of business outcomes.

FAQ4: What kind of differentiation: product, service, pricing, distribution, communication?

In anything your potential customer cares about. The whole idea of the marketing mix is that it should consistently work together because the customer experience is affected by these aspects. My dissertation was on long-term marketing effectiveness, identifying brands making a major and enduring jump in their sales baseline. This always combined a communication action with something new to tell potential customers: a product or service innovation they did not know about, a new way of framing value, a new distribution channel offering convenience. See marketingandmetrics.com for free versions of my papers showing this for each marketing mix element. It is still possible to innovate on marketing communication (eg the AFLAC duck and the BMW Films campaign, how you react to the pandemic or a recession), but competitors tend to catch up really fast

FAQ5: So what do we mean by distinctiveness, and why is it a fundamentally different concept?

I love using the 3Cs framework (Customer, Company, Competition) to discuss cases, and this is no exception. Both D&D care for the Customer, but they treat the Company and the Competition very differently.?Distinctiveness is all about the Company:?'brands that look like themselves'. Potential customers recognize your brand's material right away, and your brand comes to mind when thinking about the category, especially in buying situations.?Think about McDonalds' Golden Arches. As for Manoli's favorite mayo, Hellmann’s is: "Easy to Find,?Easy to Think-Of, and?Easy to Buy!" Byron Sharp calls this 'meaningless distinctiveness' in his How Brands Grow book.

FAQ6: When is differentiation more important?

Differentiation is more important for challengers, in emerging categories and markets: all about learning, so you are more likely to bump differentiation during times a customer is willing to learn. A cool practitioner paper back in the day showed an 18-month window during which cell phone penetration in a country increased from below 10% to over 80%. What you did in that time, and how differentiated and distinctive you were, had an oversized effect on your market share later on. Likewise nowadays, there are periods when e.g. Amazon reviews show you as better than the competition, or a large event makes your product especially relevant. Logically, your advertising is more effective in those periods. For marketing communication, that's your time to shine

FAQ 7: Advice for practitioners listening to this podcast?

Do your own research about what your customers care about and what works for you. As a general benchmark though, distinctiveness, differentiation, and customer satisfaction all matter in driving growth. What matters most for you depends on several factors, including your brand and market maturity:

The key advice from my MBR paper with Oliver Koll includes:

In emerging markets, marketers should focus on building awareness through brand differentiation and perceived value. Consumers in these markets typically want to familiarize themselves with a brand before they even enter the store. Differentiation is less critical for FMCGs in mature markets, likely because big brands have had more time to learn from their customers and each other, making their offerings more similar. Consumers’ decisions also tend to be more routine and less complicated in mature markets. Big brands in mature markets should therefore emphasize unique packaging, color, appearance, and other distinctive qualities to help consumers spot their brand on shelves crowded with alternatives. Such distinctiveness also helps smaller brands, but these also face the task of convincing those who are not yet their customers to consider and ultimately choose, their products. Our study demonstrates that their best course for growth is to improve and communicate differentiation.

Big brands should not rest on their laurels, though. Customer satisfaction has a far stronger effect on their market penetration and share than on those of small brands. Because big brands tend to be well-known and widely purchased, the customer is theirs to lose. And their popularity means that bad news about them spreads fast, reducing customer satisfaction and, with it, sales. Bud Light in the US is an unfortunate recent example. On the other hand, customers’ familiarity with large brands means that, as long as those brands don’t fail to satisfy, many will go on purchasing them, in part because of their availability and prominent placement in offline and online stores. Indeed, online consumer purchases tend to show more brand loyalty, though retail media advertising offers challenger brands efficient ways to build awareness, consideration, and conversion.