Defining Differentiation

Many bloggers and authors have defined the role of Marketing as “getting the right product to the right market at the right time.”[i]  In this context the right product includes the features/functions/benefits that the target market wants, at a price that fits market expectations as well as the seller’s goals.

Products and markets vary tremendously, ranging from commodity products and markets to highly diverse offerings serving the same market.  Two examples are the coal industry and the airline industry.

Coal is a highly compressed bio-fuel that can be used to generate heat, which can heat homes or make electricity, as well as in the manufacture of steel. Today there are numerous sources of coal worldwide.  China represents nearly half of all global demand according to the International Energy Agency (IEA).[ii]  Yet total demand for coal has declined during the past few years.  Besides the downward pressure on demand due to alternative energy sources and environmental regulations, as the Chinese economy has slowed, so has their demand for coal.  In short, coal producers worldwide operate in a classic commodity market.

How does a coal supplier differentiate this “commodity” product?

  • By Bundling   By combining a package of goods (coal) and services (credit, payment terms, delivery options, packaging, etc.) a supplier can differentiate his offering from a competitor.  In a true commodity market, everyone will eventually match everyone else’s offerings, so a supplier must continually innovate his offerings, adding additional products or services plus fit his buyer’s needs.

 

  • By Focusing   While the coal market may look identical, there are optimum segments for each supplier.  In coal, metallurgical coal demand is different from home heating coal demand, which is different from coal for generating electricity. Likewise, there are price-only buyers and there are buyers of bundles.  Differentiating by product and market may return the most positive result.

 

Air transportation from New York to Los Angeles is a different market.  One can fly by commercial airline, and within that segment by First, Business, or Economy class.  Additionally, ticket pricing allows a buyer to choose time of week and time of day for potentially lowest fare, not to mention when the buyer purchases his ticket.

Alternatively, one can choose to purchase a fractional share of a jet service, or purchase a private plane.

Suppliers to these different segments, which range from the “lowest price” buyer to a buyer of a plane, have to differentiate their products/services from their competition.  Not surprisingly, the definition of differentiation to the price buyer is the same as to the commodity coal buyer, bundled products and focusing on a specific segment e.g., the buyer who will accept a non-refundable ticket vs. one who wants a refundable ticket. 

The differentiation by the fractional jet or plane seller is different, ranging from appeals to cost savings, to convenience to ego and status.

As shown, every seller must differentiate his product to meet the needs of the identified target market.  This differentiation is shaped by the nature of the market (e.g., commodity vs. prestige) and as a result the seller’s offering must contain those features/advantages/benefits that make it “right” or most appealing.

When was the last time your analyzed your differentiation and its appeal to your target market?  Have you already seen a drop in demand in one product line or in a foreign market, for example?

If that is the case, or if it has been more than a year since you analyzed your differentiation, call us for a discussion to help you get back on the right track.

If you would like a copy of the differentiation checklist we use in discussing and defining differentiation with clients, so indicate on the Contact Us – Guide.

RHM

4/5/16

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