The easiest way to define who you are is by comparison and contrast with your competitors. What do they stand for? What do they offer their markets? Do you offer the same or different qualities? This exercise is called “differentiation”— determining how you are unlike your competitors.
Consider consumer banking as an example. Until fairly recently, there were two kinds of consumer banks: large banks with lots of branches but impersonal service, and small banks with personal service but few branches. Then some marketing genius came along and thought, “Why not combine personal service with lots of branches?” The result was a new wave of consumer-friendly banks like Commerce Bank and Washington Mutual. These businesses positioned themselves against their competitors to come up with a new and better bank.
Products that are undifferentiated are considered commodities, like grains or metal ores. A commodity market is one in which all products are the same (gold is gold) and cost the same. It doesn’t matter to the marketplace how much it costs to extract the metal from a particular gold mine—you’ll get the same price per ounce as your competitors.
Most companies want to avoid having their products turn into commodities. Even items that were once treated as commodities—basic checking, for example, are now being differentiated.
There are many ways to differentiate. Some points of difference are tangible: price, selection, terms, and delivery time. Some are intangible: quality of service, expertise, image, value, and status. Some points of differentiation are inherent in your product or service. Mutual funds, for example, compete largely on the basis of investment return. If your fund is beating its peers, you’ll get business. Companies can add value to their products in order to differentiate. Returning to the mutual fund example, the Vanguard Group has differentiated itself from its competitors by charging very low management fees, thus becoming a price leader. Other companies differentiate by adding broader fund selections, like Charles Schwab’s supermarket approach. Still others add value by offering personal financial planning services.
Determining Positioning Strategy
If a company is offering a new product or service, it must determine, early on, how it will position itself with respect to both its target markets and competitors. Consider an investment manager who is setting up a new hedge fund.
The process would consist of the following steps:
This can be set up as a grid, as shown in table. The rows show the characteristics that are important in the marketplace. The columns are for your company or product and its major competitors. The goal is to see where there is potential to differentiate.
In the example, New Hedge Fund is superior to its most direct competitors in its partners’ experience in the international markets and in their previous jobs with well-known fund managers. Their most recent 12-month performance (at previous jobs) was about average for their peer group, but the partners have performed better than average over time. The biggest negative is that New Hedge Fund has no money to support a sales force and is competing with relatively well-known firms. An open question is whether to charge more, less, or the same as its competitors.
An exercise of this type provides insight into how to distinguish one’s own company from competitors, using attributes that matter to target markets.
Once you’ve established your positioning strategy, you need to make sure that all elements of your product and marketing adhere to it. A private bank
Sample Positioning Strategy Grid
is going to have a very different look and feel than a mass-market bank. Its client offices will be deeply carpeted, and the walls will be covered with fine art. Its marketing materials will be elegant and sophisticated rather than bright and fun. Client-facing staff will have advanced degrees and will dress and act like the professionals they are. Such formality would be out of place in a WaMu. Positioning means knowing who you are and making sure that the face you present to the world is how you see yourself when you look in the mirror.
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