I was recently asked to give a key note speech at a Thought Leadership event for the service industry. The subject was differentiation, which in the service industry can sometimes be difficult to achieve. Using the London 2012 Olympics as a case study I drew on three key lessons that could be applied to the service industry to create differentiation in what is a very crowded and competitive market.
Whilst the content of my speech was tailored to the service industry the lessons can be applied to any industry or market place to create differentiation that leads to a market leading position and to maintain it over time to ensure you do not fall back into the pack.
One of the key challenges for service providers, and particularly those in outsourcing, is that their services are viewed as a commodity and hence clients will often select the lowest cost provider. It would be easy to blame customers for this focus on price but it is my view that the service providers’ failure to differentiate themselves is a major contribution to the focus on price. If no one is standing out from the crowd in a competitive market place then the customer has to differentiate for themselves and price can often be the only tool they have at their disposal.
If customers are differentiating on price then the market very quickly becomes a race to the bottom. Differentiation on price is a race with no winner; margins are hit, service levels drop and reputations get damaged. For the service industry, the failure to differentiate reinforces the view that services are a commodity which in turn further lowers their value to the customer. And so the race to the bottom continues.
The failure to differentiate and the subsequent impact on prices can also be applied to other markets. If producers of consumer goods, for example, do not differentiate their products then price becomes a large part of the consumers’ decision making process.
Within the service industry I believe the failure to differentiate also impacts on staff. Most people like to feel that their job means something, that they are doing something valuable. This is particularly true in the service industry. If service providers differentiate what they do for their customers, they give it some additional value. This will also give their employees something to feel good about, something to feel proud of. If employees don’t have pride in what they do, if they feel their job has no value then it will affect their morale and motivation which will in turn cause productivity and retention to suffer. This is particularly important in the service industry where employees are at the front line, delivering the services. But parallels can also be drawn in retail, banking, call centres, etc, where your people come into direct contact with your customers.
So differentiation is important on a number of levels; it helps you to grow market share, it can maintain and possibly improve margins and it’s good for your people. So how you do achieve it? The three lessons I presented during my speech are:
- Find the big idea(s): you need a big idea or ideas to set your organisation apart from the competition. So how do you come up with them? Do you ask your customers for their views? No! As Steve Jobs often observed your customers don’t know what they want until you give it to them. If you rely on your customers for your big ideas then you are likely to come up with a version of what already exists and that won’t differentiate you. And it may not be what they actually need or are willing to pay for either. You need big, game-changing ideas to create true differentiation. However, your big ideas do need to be related to something that is important to your customers; they have to address an issue, priority or problem that your customers care about. So you need to find out what your customers’ needs are now and in the future and then use this to create your big ideas that will give you real differentiation. Once you have your big ideas you can then test them with some trusted customers to see if you are on the right track. Because as you will see from lesson 2, you need to build your business around your big ideas so before you do too much work you need to validate them in some way.
- Make your big ideas part of your DNA: your big ideas can’t just be for marketing or PR purposes; they can’t just be words on your website or in your brochures and press releases. They have to be part of the DNA of your organisation, evident in everything that you do, from the services you provide or the products you produce to the way you communicate internally and externally and the way you organise and manage your business. If not then customers will see through the hype. Your key messages will be confused and your customers will not know what your company stands for, why you are different and why they should buy from you. And before you know it you will be back in the pack competing on price, racing to the bottom. If you are worried about building your business around your differentiators in case your competitors copy you or your customers’ needs change then don’t be. If your big ideas are really big, game-changing ideas then it will take your competitors 1, 2 or maybe even 3 years to catch up. You can use this to time to evolve your big ideas, to move them to the next stage in line with your customers’ needs. And if you have really changed the game, disrupted the market, then your big ideas become what your customers want, you will have set the standard against which other services or products are measured. So make your big ideas part of the DNA of your business but be prepared to evolve them and your business over time – that’s part of how you stay ahead.
- Build momentum: this lesson is particularly relevant to the service industry where companies have to bid for contracts. When bidding you have to build momentum, start slowly and gradually pick up the pace as you approach the final stages. Don’t use all your best ideas early in the process as your clients will get used to them and they will lose their impact and you’ll also give your competitors time to copy or counter what you offer. Building momentum also applies more generally to establishing your big ideas and differentiators in the market place. Building your business around your big ideas and getting your key messages out into the market takes time. You can’t change the DNA of your business overnight, you have to do it gradually, but you can do it in a way that creates momentum both internally with your people and externally with customers. Start with small initiatives and subtle messages and gradually build from there. So as your business changes to reflect your differentiators so does the pace and power of your initiatives and your key messages and with them the strength of your differentiation.
Following these 3 steps I believe will create true differentiation in any industry and will put your organisation ahead of the pack and make sure you stay there.