The Paradox of Differentiation

Differentiation is the ultimate competitive advantage. According to Warren Buffet, it’s even more important than that. “Differentiation is survival,” he says.

“Differentiate or die” -- Warren Buffet

As critical as it is, companies struggle to achieve real differentiation. While they treat it as a goal, it’s an outcome. It’s an effect, not a cause.

Differentiation-as-a-goal is egocentric, a company trying to stand out and beat its competitors while ironically using them as benchmarks. Differentiation-as-an-outcome is the empathetic and generous act of bringing a new kind of value into the market, on behalf of customers.

DIFFERENTIATION AS A GOAL

When pursued as a goal, differentiation uses competitors as a benchmark and category norms as reference. The result is companies with slightly different products and services, competing on price and features. The focus is usually on quality and price because companies feel a greater sense of control over these two variables. Most companies end up choosing one of two ways to achieve differentiation: product innovation or cost leadership.?

The challenge is that, in most industries and categories, breakthroughs are very to produce, and costly, so companies end up simply adding features, which leads to incremental, not radical, innovation. Cost leadership, too, is difficult. When executed well it can be very powerful (i.e Walmart, Costco or Amazon). But for most companies, it usually simply means undercutting the competition, which shrinks profit margins and puts a real squeeze on the business.

Differentiation as a goal rarely leads to real or sustainable differentiation for at least two reasons. One, it often leads down the path of slightly better than the competition. Two, the factors upon which differentiation is built are often easy to duplicate.?

DIFFERENTIATION AS A OUTCOME

Fundamentally, what sets companies apart is not their product or prices, but their worldview– the collection of beliefs, principles and values that inform and shape how they see the world. Those values and beliefs lead to a different set of choices and decisions that find expression through strategies and tactics, ultimately creating differentiation.

When differentiation is understood as an outcome, companies use their vision and the needs of their customers as reference points, not the competition nor the market. The goal is value innovation– a leap in industry standards and customers’ existing expectations.?Walmart, and later Amazon, were founded on a clear set of principles that informed the kind of decisions Sam Walton and Jeff Bezos made, respectively, which ultimately led to cost leadership. It was not the result of trying to undercut the competition, but the expression of a clear and coherent business philosophy.

Study the greatest companies and the most iconic brands and you’ll quickly realize that they didn’t achieve differentiation by pursuing it. They did it by being clear about and staying true to who they are and what they stand for, and by leading with empathy for their customers.?

Ultimately, the paradoxical thing about differentiation is that it eludes us when we make it our goal because it implies comparison. However, when the goal isn’t to be different but to bravely innovate on behalf of customers, it often yields differentiation as an outcome.

RESOURCES and SUGGESTIONS

Books

Blue Ocean Strategy by Renée Moborgne and W. Chan Kim is our favorite book on positioning because the whole framework focuses on empathizing with customers as a means to unlock a leap in value for customers. They call it Value Innovation, which is we reference in this newsletter.

Podcast

David Senra 's Founders Podcast is a must-listen for every entrepreneur. Whether you a first-time founder or a one with already multiple exits under your belt, I promise you that you will find a philosophical, inspirational, or practical nugget with the potential to take your company on a completely different trajectory.

COMMUNITY SPOTLIGHT

Jonny Prest

Jonny Prest is an enlightened brand strategist and a founder at Seed, a marketing agency that focuses on planet and people-protecting brands and projects.

Jonny relentlessly pursues a belief and vision that, although we are approaching a tipping point of a climate catastrophe, it can and will be reversed if we, individuals and businesses, commit to the necessary changes.

He believes that to get to Net Zero we need creativity. So in his role as a brand strategist, he focuses on helping brands build new models to leverage skills and resources for the protection of our planet and its people.

Jonny and Seed are a perfect illustration for how purpose, authenticity and empathy create differentiation.

grio

Our mission at grio is to amplify voices, champion cause and scale businesses that improve the human condition.

We believe that changing the world is a team sport. So we partners with visionary leaders and purpose-led brands to help make this world a better place. We leverage brand strategy, design and creativity to help unlock their full potential and advance their respective missions.

If you are looking for a real partner to support your world-changing quest, send us a message at [email protected]

To learn more about our agency, visit grioagency.com