Category Archives: Differentiation

How Differentiation Can Impact Pricing Strategy

Let’s talk about how the choices you have made for business strategy (for my previous few blogs) will affect your pricing strategy. Let us assume that your start-up has figured out some way of being different and better in the eyes of customers. Either your product itself is better (i.e., product strategy), or it has better features (i.e., feature strategy), or is somehow delivered to the customer in a better way, (i.e., delivery strategy) or the company delivers better customer service (i.e., service strategy), or something else. Once accomplished, you now have two choices for a pricing strategy to consider:

  • Sub-Strategy 1: Premium Pricing: You price your product higher than the competition. You argue that customers will see more value in your product and thus will be willing to pay more for it.
  • Sub-Strategy 2: Comparable Pricing: You price your product in line with the competition’s products. When customers compare your product and the competitor’s side-by-side, they see two pro­ducts at the same price, but your product will stand out as clearly superior, and thus will provide more value. As a result, you will achieve more volume and thus higher market share.

The above extracted from my latest book, Will Your New Start Up Make Money? Buy your copy at http://www.amazon.com/Will-Your-Start-Make-Money-ebook/dp/B00JOOZQNE.

Feature-Rich or Feature-Poor: Entrepreneur Strategies

Once entrepreneurs figure out what products they are going to sell, they still need to select approaches on how they will deliver its features to customers. These are called feature selection strategies.

  • Feature-rich. Start-ups that engineer products have an option to introduce to the market products that are feature-rich. The advantage of this strategy is that customers who are comparing your product against entrenched pro­ducts on a feature-by-feature basis are more likely to select your product. If you are targeting a fairly general market and/or products are in a fairly mature stage of their life cycles [MOO95], you may have no choice. In such cases, order qualifiers (order qualifiers are those features, which if absent, will mean customers are unlikely to purchase) include a long list of features.
  • Feature-poor and build capability slowly. For products early in their product life cycles [MOO95], or when you are targeting a newly recognized segment of a broader market, building a feature-rich product could be dangerous (you may build the wrong product) and expensive. Instead, a better strategy could be to build a smaller, simpler, feature-poor product, sometimes called a minimally viable product (MVP). Then you carefully select representatives from your target market to serve as beta customers who can experiment with the product, provide feedback, and you slowly migrate the product toward a richer and richer set of features based on customer feedback and customer demand. In The Lean Startup, Ries recommends offering the MVP to an even broader market to fully validate not only your features but also your assum­ptions concerning market penetration, price tolerance, sales model, etc.

The above extracted from my latest book, Will Your New Start Up Make Money? Buy your copy at http://www.amazon.com/Will-Your-Start-Make-Money-ebook/dp/B00JOOZQNE.

 

Product Strategies for Entrepreneurs

A start-up could sell unique (aka differentiated) products or it could sell products that are sold by others:

  • Differentiated product. Almost every start-up offers products and services that are unique in some way when compared to its competitors. These unique characteristics are called differen­tiators, and when selected appro­priately become order winners (i.e., they may encourage customers to pur­chase your product instead of a competitor’s). Infinite ways exist to dif­feren­tiate a product:  new taste, totally new category of product, more prestige, more convenient, faster service, better quality results, newer technology, safer, smaller, and so on.Porter [POR80] captured this concept in his broad differentiated category of strategy, although Porter’s broad differentiation includes aspects of both product (“differentiation”) as well as target market (“broad”). Treacy and Wiersema [TRE93]’s concept of product leadership represents a specific example of differentiation in which a company aggressively pursues new solutions that obsolete all existing products, even its own. Companies like 3M, Apple, Hewlett-Packard, Intel, and Newell Rubbermaid are all well known as companies that follow this product strategy. Because start-ups have no history of products, it is hard for them to endeavor to obsolete their own past products. However, they can certainly embark on a path with that as a plan.
  • Same product as competitors. Start-ups that sell products identical to or very similar to the competition will usually fail unless they have some other way to differentiate themselves. They will need something; for example, better marketing (to create more market pull), better distri­bution (to reach more of the market), lower price (to cause more price-con­scious customers to buy), better customer service (to encour­age return customers), or lower cost (to increase your margins or to enable you to lower your prices). I will discuss all of these in subsequent blog entries. Although start-ups rarely have the ability to execute on many of these approaches (i.e., they tend to stick to being differentiated), exceptions exist: Amazon started selling undifferen­tiated products online in 1995 with better marketing, better distribution, lower infra­struc­ture costs, and lower prices than the competition.

The above is extracted from [DAV14].