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Strategic Positioning & Competitive Advantage

How To Differentiate A Jewellery Business

How to differentiate a jewellery business is another of my trade and industry focused guides to differentiation.

This is just an introduction to the issue of differentiating a jewellery business and not definitive. It’s intended to give you ideas if you are a jeweller who is struggling to find a clear position in your market and isn’t intended to replace working with me or another strategy consultant or coach.

Jewellery Business Or Jewelry Business

Let’s first deal with the spelling issue.

I’m based in the UK so for me it’s jewellery and jewellery business.

If you’re American, it’s jewelry and jewelry business.

Don’t blame me, blame Noah Webster for causing confusion.

What Is Jewellery?

According to Wikipedia…

“Jewellery or jewelry is a form of personal adornment, such as brooches, rings, necklaces, earrings, and bracelets.”

I’d also add watches to this list of items since many watches go far beyond the functional issue of telling the time.

It may contain jewels (gemstones) or precious metals or it may be a trinket with little intrinsic value but look pretty.

Why Men Buy Jewellery?

Retail guru and author Paco Underhill (in his book, Call of the Mall) says that jewellery has bought by men for women for three big reasons:

  • Keys to the front door – Engagement, anniversary, birthday – these are public statements of affection and intention.
  • Keys to the back door – Presents for mistresses and girlfriends that create very favourable impressions but avoid commitments.
  • Keys out of the doghouse – To say sorry and to make amends for bad behaviour. Jewellery is expensive and that means making a big sacrifice to buy it, a clear sign that the man is sorry.

Why Do Women Want Jewellery?

Jewellery helps a woman to feel even more attractive and more valued and loved by her husband or partner.

It helps to differentiate her from the other women she knows (and who her partner knows).

It also helps draw attention to and emphasise particular features.

Jewellery can also have sentimental meaning. A particular piece may have a far higher sentimental value than intrinsic value because of all the memories it has.

While women have worn some kind of jewellery across all cultures and time, certain associations are due to advertising. Diamond firm De Beers have done a fantastic job of linking diamonds to engagement rings with the slogan “a diamond is forever” and the desire for everlasting love and commitment.

Now that we’ve taken a quick look at the reasons for the demand for jewellery, let’s look at the main topic.

How To Differentiate A Jewellery Business

We’ll look at the seven big questions of business success and how they can be used to differentiate a jewellery business.

What’s important is that you create a distinct definition and feel for your business that sets it apart from your competitors in a way that adds value to the customer and creates an emotional or logical reason for deciding to buy from your business.

This isn’t about being different just to be different and the ways that your jewellery business are different need to make sense in a way that reinforces rather than offsets the customer value criteria.

Your aim is to qualify as a suitable supplier and then win preference.

This means you have to balance the general industry key success factors while providing factors of difference.

It involves managing a trade-off between what many customers want and what particular customers want so that you hit the marketing bullseye.

BullsEye Marketing - A Bull Is A Probable Buy

1 – Using “Who” To Differentiate

I find “who” is a great question to start with when thinking about differentiating a business because it puts the focus on the customers.

Suitable questions are:

  • Who is going to buy the jewellery? Is the business going to specialise in helping men make the right buying decisions?
  • Who is going to wear the jewellery? A business could specialise in men’s jewellery or women’s jewellery. Perhaps there is some social/demographic factor that can be used to create a niche.
  • Who has designed or made the jewellery?
  • Who has worn the jewellery? Celebrity endorsements can create preference because of the desire to be like someone you admire. As a middle-aged British man, I’m drawn to associations with James Bond so Omega watches have an appeal.

2 – Using “What” To Differentiate

The second question refers to what and this means that the jeweller can specialise in certain types of jewellery – engagement rings or necklaces – and build a reputation as a specialist.

Or certain types of components. The obvious are the metals – gold, silver, platinum – or the gemstones – diamonds, rubies, sapphires. I remember talking to the owner of a business that only sold pearls in the Jewellery Quarter in Birmingham. This helped to set his business out as special.

A less obvious what is “what’s the story behind the jewellery?” Perhaps it’s my romantic soul but I find stories about products and businesses appealing. This can also link to differentiating by why.

3 – Using “Where” To Differentiate

Before the Internet, location used to be a key factor. Many businesses didn’t need to worry about differentiating themselves because their location in a small town meant that they were the only viable supplier.

Many towns were large enough to make one jewellery store profitable but not two.

The growth of the Internet, TV shopping channels and mail order and the increased specialisation that has enabled means that the “where” factor for differentiation has lost some of its local impact.

In larger towns, where remains an issue. There are advantages in both being well separated from competitors or being close to the competition. We all find it easier to buy when there is a small choice, and we can make direct comparisons.

Where might relate to jewellery from a particular country or region which has a unique style.

4 – The “How” Factor For Differentiating

How can refer to how the business markets its jewellery to customers. An Internet business relying on search is very different from a retail store dependent on passing traffic or a jewellery business that promotes its products on the shopping channels on TV or through mail order.

How may refer to some unique process for making the jewellery or the components. Perhaps everything is hand made and assembled.

5 – The “How Many” Factor For Differentiating

How many is all about using numbers to differentiate your business.

It may be about the stock range – more than 2,600 engagement rings, the largest selection for 200 miles.

It might be a factor in the jewellery itself – we only sell diamond jewellery with diamonds on at least one carat.

It might be about the number of items of a particular design – all our jewellery is unique, designed for you and only you. Our guarantee is that we will never create two identical pieces of jewellery.

Or it might be a small limited edition – only 25 of these necklaces will ever be made and sold.

6 – Using “Why” As A Factor Of Difference In Your Jewellery Business

It can be effective to link your business to a good cause to help differentiate the business and provide a unique reason for the customer to buy from you. It’s less obvious for a jeweller than other businesses – think charity Christmas cards – but any business can find some link.

Or perhaps the why is about why your business exists.

Someone ripped off by an immoral jewellery dealer might start a rival business and emphasise ethics and fair dealing.

7 – Using “How Much” To Create Customer Preference

The final way to differentiate yourself is to use price.

At its simplest level, we can see this as positioning along the customer value map.

If a reasonable sized town has one jewellery business doing very nicely with a mid range offering, it may attract attention from a competitor with shops in other regional towns. If it’s a well-to-do area, then a premium jewellery business might do well. Alternatively a budget jeweller might increase the overall market as price conscious customers can buy jewellery as well as other presents.

Alternatively this may be about creating customer preference by offering the lowest prices for the same pieces of jewellery. Purists may challenge whether this is a differentiation strategy and argue that it’s more about being the lowest cost supplier. My view is that low selling prices and the lowest buying prices don’t necessarily have to go together although economic viability will limit some options.

How To Differentiate A Jewellery Business

Many businesses struggle to find ways to differentiate themselves on their own, partly because the owners know their own businesses too well. They struggle to see what’s special about it.

The seven big questions shows that there are plenty of different dimensions to make your jewellery business different. At its core, differentiating a jewellery business is about looking at:

  • the business;
  • the customers – who they are and what they want and need; and
  • the competitors – what they do and what you can do that’s different.

Good luck.

in 3 – Your Strategic Positioning

Vertical Differentiation or Horizontal Differentiation?

I was reading my good friend,  Ian Brodie’s excellent blog, and he introduced me to the term “vertical differentiation” in this article,

Ian helps consultants, coaches and other professionals to get more clients, and he was saying how difficult it is for these people to be unique.

Often these businesses provide similar services to their competitors and have little opportunity to do something new and different – what Ian calls horizontal differentiation.

Vertical Differentiation – Being Better Than Your Competitors

He selects several well known names and argues that what makes them different and successful is not that they do things different, but they do things better.

This is vertical differentiation.

The firms occupy the same horizontal places in the market but clients generally rank them as above competitors.

Vertical Differentiation And The Strategy Canvas

Just to be clear, if you use a visual technique like the strategy canvas (from the Blue Ocean Strategy book) or what I call a customer value attribute map, vertical differentiation is a higher rating on the attributes considered most important to the customer)

Vertical differentiation an interesting idea but I think relying on a strategy of being seen as better is dangerous.

Claiming To Be Better Is Dangerous

First, better is such a nebulous concept and especially for services where so much of what is provided is intangible.

How can a potential client assess whether one lawyer is better than another?

Second, even if they can make an assessment, better like beauty is in the eye of the beholder. It’s difficult to influence since it comes down to personal tastes unless you introduce factors of genuine difference.

Third, if all the professional firms look the same, then different becomes better. Standing out suddenly makes the business look more attractive.

Imagine ten identical beautiful blonde girls in a room – you’d expect each to get an equal amount of attention. Now imagine one went out of the room and came back with her hair dyed brunette.

She stands out and becomes more magnetic. She’s no more beautiful than she was before, but she is different from the others and more memorable because of it.

That little difference can help focus attention and instead of being dazzled by sameness, genuine quality differences might be perceived.

The final big concern about basing a strategy around vertical differentiation and being better is that it increases competitive rivalry. Competition is focused on a few specific attributes. As one rival improves in one dimension of customer value, another is encouraged to take actions to match or improve on that same dimension.

This is likely to create a cycle that increases costs of services but, although the customer value delivered increases, the competitors are unable to capture that value because of competitive pressure on price. Businesses are trying to move away from the customer value line to create advantage rather than along the customer value line to create a different value proposition.

Better Is Worthy But It Can Be A False Perception Of Reality

I believe being better is very worthy (we should all aim to be the best we can be) but it can lead you into a false reality.

We all tend to believe that we are better than we are.

I remember reading some research on professionals who were asked to rank their skills and knowledge compared to their peers. Something like 90% rated their skills as better than average!

How does that work?

It obviously can’t. Average means that 50% are above and 50% are below (strictly speaking that would be the median).

It does point to the problem that people generally think they are better than they are. In marketing this means relying on false hope which isn’t a strategy for success.

Even Clients Will Give You A Biased Answer

I bet you think that you can ask your clients to get an unbiased opinion but the question is rigged.

“Do you think your professional firm is better or worse than average?”

It sounds like a fair question but what’s it really asking?

“Did you make a wise, intelligent decision and use a professional firm that is better than average  or are you an idiot and have you continued to use a professional firm that is below average?”

Yes, you can expect to hear that clients made a wise decision even if they’d never think of making a referral.

If you think you’re better because you’re biased and your clients think you’re better because they are biased too, then vertical differentiation can lead to complacency and you finish up with the stalemate that you see in many professional services.

Differentiating by trying to be better sounds like a cop-out to me unless customers are rigid about their buying criteria and what they expect to experience.

Advantage – ABCDEF

I commented on Ian’s blog with a little acronym I’ve used for years.

ABCD – your Advantage can be Better, Cheaper or Different.

After I’d written it, I thought some more and wish I’d extended it to ABCDEF – your Advantage can be Better, Cheaper, Different, Easier or Faster.

The easier and faster helps to give a couple more dimensions to think about how your business impacts on the customer’s experience. Depending on your definitions, easier and faster could have come out of either the better or different categories.

I’d like to know what you think.

Is there merit in following a vertical differentiation strategy and being better than competitors rather than having horizontal differentiation?

And if it is, how can you communicate that you are better?

in 3 – Your Strategic Positioning

Differentiation & Business Start-Ups

Is differentiation and how you will attract and convert customers a vital issue that needs your attention while you are thinking about starting a business or is it something that you can afford to leave until your business is more established?

The Role Of Differentiation In Business Start Up Planning

This is one of those irritating questions where the answer is “it depends”.

Differentiation is about establishing positive reasons for customer preference in the buying decision.

In my article, Will Your New Business Start-Up Succeed? I looked at the three big risks that every business must face and conquer.

Differentiation is a key issue in the second risk – can your business survive the competition?

If You Don’t Have Any Competitors?

If you’re selling into a very clear need or want and you are in the very lucky position that you don’t have any competitive rivalry or threats from close substitutes, then differentiation isn’t a core issue that needs to be tackled in your initial business start-up planning.

You can focus more on the demand risk (and whether there is enough demand for the business to be viable because there might be a good reason why this opportunity has been ignored) and the capability risk.

However, your success might attract competitors and at that stage differentiation and defending your market share become critical issues.

If You Do Have Competitors

If you are competing against competitors then there’s only one occasion when differentiation isn’t a critical issue for your start-up business planning. That’s if demand is much larger than supply and you confidently expect that situation to continue for the foreseeable future.

Few of us are in that situation.

Usually we have spare capacity and so do our competitors. Winning a customer increases our profits and losing an opportunity reduces their profits. If competitive rivalry is intense, then price wars can easily develop unless customers’ bargaining power is reduced by forcing them to make a choice between products and services that aren’t commodities.

If you’ve got competitors, you need to be thinking about target marketing and about what it takes to win business rather than just get in the game.

That means that you’ve got to have a very clear differentiation strategy from the very beginning.

And as you’re clear, you can build it in to everything your business does, inside and outside its boundaries. Your differentiation strategy has a big impact on what you say in your marketing and in how you structure and manage your business.

in 3 – Your Strategic Positioning, Business Start-Ups

Customer Value : What Do You Get For Your Money?

For about the last 25 years I have been fascinated by the concept of customer value – what you get for your money when you buy.

When we buy, we instinctively get a feel if what is offered represents good value for money based on what we want and our experience of buying and using similar items.

Buying involves choices.

Do we buy this one, that one or not buy either?

OK sometime we buy both but more often, buying one means not buying something else.

To help decide we look to the value that we as customers will get from using and/or owning the item.

I’m typing this on a PC, I get my value from using it.

If I had a low mileage Lamborghini Miura in the garage (and sadly I don’t), I may not be prepared to drive it because it would cause the car to lose value as a classic car investment. Instead, I’d get my value from knowing that I own one of the most iconic cars every made and also from walking into the garage to admire its stunning beauty.

Photo courtesy of motoryen.

What Is Customer Value?

Customer value is the key concept in developing differentiation strategies for your business.

Robert Woodruff has recognised that customer value comes through three levels:

  • Attributes and product features
  • Consequences of owning or using the product
  • Goals and values behind the motivation to buy

A Customer Value Example – Buying A Classic Supercar

So if I was to go out and buy a Lamborghini Miura, then I may set myself a few product attributes to help make the choice.

  • The colour – I have to admit that the gold Miura in the photo does look snazzy but I have a 1/18 model of a blue one that looks terrific too.
  • Mileage – I could set a maximum mileage limit of 10,000.
  • Condition – recently restored with original parts, immaculate.

Those would help drive the consequences – to feel good, to take pleasure from looking at it and treat it as an asset which will appreciate in value.

But it doesn’t explain why I want the Miura and not a Ferrari or Aston Martin. They are fine cars and could achieve similar consequences.

We need to go higher to find out why only a Miura will do.

And that relates back to falling in love when I saw one as a nine-year-old and being in a tizzy for days.

Sadly I’m rather too pragmatic with money to go out and buy a Miura, even if I could afford one.

When I go out looking for a new car, my first question is “do I fit in it?”

I’m a big chap and struggle for headroom, legroom and in some cars, width as well. I probably couldn’t fit into the Miura so it’s just as well that driving it isn’t one of my aims.

If I don’t fit – a qualifying attribute – the car fails and is dismissed from my consideration.

Once I’ve got myself a short list, I start looking at other factors like design (a subjective attribute linked to how I feel owning it, driving it and imagine what others think when they see me with it.)

Then I’m interested in practical issues like cost of ownership (depreciation, miles per gallon, service costs) and how inconvenient it is to have it serviced and maintained.

Customer value is a combined assessment made up of positives (the car makes me feel great) and negative (costs and service issues).

It’s also relative.

Customer Value Is Relative

Customer value is most easily assessed in comparison to a similar product.

The food in this restaurant is good but it’s even better at this second restaurant.

I like this wine very much because of its fruity flavours but I’m not so keen on this one.

My accountant does my tax returns on time but I think this one could give me better business advice.

Customer value is also relative to the price we pay.

This wine is great value for money at £5 per bottle. It doesn’t taste quite as good as this one for £25 but it’s much better value for money.

Other Customer Value Articles

Two diagram approaches to customer value are very useful for helping the management of a business understand customer value concepts and how their strategic position compares to competitors.

Customer Value Map

Customer Value Attribute Map – known as the strategy canvas in the Blue Ocean Strategy book.

The Strategy Clock is a very useful way to think about possible strategy moves and changes in positioning.

in 3 – Your Strategic Positioning

Opportunity Gap Exploitation

The phrase opportunity gap exploitation is one I’ve borrowed from Dan Kennedy and it refers to one of the ways to find your unique selling proposition or, if you want to get fancier, your differentiated value proposition.

A great example is Dominos USP – fresh, hot pizza delivered in 30 minutes – guaranteed.

It is a classic example of a positioning statement although it stopped being unique when Dominos grew so quickly and competitors started copying the idea.

The opportunity gap is based on looking at what competitors do badly and which irritates customers or even stops them from buying – and then designing a business and offer to take the problem away.

Domino’s didn’t invent home delivery of pizza but they did put an end to the problem of ringing up, ordering it and waiting…

and waiting…

and then when it was finally delivered, finding that the pizza was cold.

How do you use the idea of opportunity gap exploitation to build a business?

It goes back to my differentiation process.

You need to know what your competitors are offering.

You need to know what your customers want… and what they don’t want.

And you need a clear understanding of what you can promise and deliver consistently through capabilities your business has or can quickly and reliably deliver.

The Domino’s guarantee – you get the pizza in 30 minutes or it’s free – meant that they couldn’t afford to make a promise in their marketing which they couldn’t deliver. This isn’t a bad case of shallow differentiation or selling the sizzle not the steak.

Domino’s would have gone bust if they’d had to give away many free pizzas and you can bet with a USP like this, the customers were watching the clock.

What Opportunity Gaps Exist In Your Market?

Can you take this opportunity gap idea and find a gap in your market to exploit?

It’s not the only way to differentiate your business but working from customer frustrations and competitors’ weaknesses is a pretty good place to start to create a business concept which will succeed.

Domino’s used it to build their brand and although it’s not used any more, I bet it’s still how many people think of Domino’s.

Even if competitors copy, once one company has claimed such a strong positioning for hot, fresh pizza FAST, it’s very difficult to beat when you’re tired and hungry and you want to get something to eat.

in 3 – Your Strategic Positioning

It is very tempting when you are starting a business to cast your net too widely and to try to appeal to many types of customer.

The problem is that by being so general, you finish up talking to no one.

I think it’s easier to see how crazy this is by stepping out of the business world.

Who To Date?

Imagine that you are a lonely man looking for a date.

The problem is, you don’t seem to meet many women in your everyday life so you decide to do what many others do and write a personal advertisement in your local newspaper. (Or go through one of the dating websites/apps.)

You could take the easy way out because you’re not sure what you want.

“Woman wanted – any age”

That’s pretty clear and you’ve not ruled out anyone because they are just outside any artificial criteria you set.

Not many words either so it won’t cost much.

You advertise.

Nothing happens.

Why?

Because the advert is from a desperate man.

You may as well have said

“I am a desperate man. Any woman will do.”

And that’s not a very attractive proposition.

So you stop to think what you want and narrow it down a bit.

If Cheryl Cole is your ideal woman, you identify the following characteristics:

Beautiful

Slim

Wealthy

Successful singer and personality

Geordie

Aged 37 (she was born 30 June 1983)

That’s given you something to work with.

Now Cheryl Cole probably doesn’t read the personal ads in your local paper so your ad has to say more than “Cheryl Cole call me” but someone like her may.

Which characteristics are most important to you?

Does a woman have to be beautiful, or the less exclusive “nice looking” or perhaps looks aren’t important to you.

Does she have to be a Geordie or just support Newcastle United?

The more you refine what you are looking for, the more you can write a personal ad which will attract the type of woman you do want to meet. Of course, you need to tell the truth but you’ll want to emphasise certain things your ideal woman finds attractive.

The alternative is, you are so desperate any woman will do.

It’s the same in business.

Holding your arms out and shouting “Any customer will do” won’t attract anyone.

You want to attract those customers who are right for you.

Those who give you an opportunity to do your best work. You need to define your marketing bullseye.

in 3 – Your Strategic Positioning, Business Start-Ups

4 Niche Marketing Myths

The book Battling Big Box referred to four niche marketing myths identified by entrepreneur, speaker and author Harvey Mackay which I thought were well worth telling you about.

Many business advisers and marketing experts say “get a niche” without saying much about how to choose a niche.

Let’s Go Niche Marketing Myths-Busting:

  1. Myth one – a niche market has to be chic.
    .
  2. Myth two – a niche has to be new.
    .
  3. Myth three – a niche shouldn’t be too narrow.
    .
  4. Myth four – a niche has to be neat.

Now let’s dig deeper into each.

Niche Marketing Myth 1 – A Niche Market Has To Be Chic

This is nothing to do with Nile Rodgers disco band called Chic in the 1970s although Chic were leaders of the disco music niche.

Chic normally means stylish or smart. If you want to build a business to be proud of, then the temptation is to pick something fashionable and potentially also move your business upmarket.

If you wanted to own a hotel or restaurant, wouldn’t you prefer it to be chic?

But it may not be where the money is.

There’s an old Northern English expression that says “where there’s muck, there’s brass” and brass means money. This line of thinking suggests that there’s a lot of money to be made doing jobs that other people think are dirty or unpleasant.

When I was a trainee accountant, I audited a local Funeral Director’s business, and I was shocked by how profitable it was. The thought of doing the work – although much needed – makes me shudder but it does prove the point.

To prove the myth wrong, that niches have to be stylish, you don’t even have to go from one extreme to the another. Everyday ordinary things may provide an opportunity for a successful niche. The book mentions Turtle Wax for cleaning cars and Harvey Mackay built a huge business selling envelopes.

Niche Marketing Myth 2 – A Niche Has To Be New

There’s a temptation to think that you’ll only find niche marketing opportunities in new markets.

It’s wrong.

Markets are in a constant state of movement:

  • Customer needs, wants and populations change.
    .
  • Competitors change – some competitors leave the industry sector, others lose their niche appeal by chasing growth and new competitors enter the market.
    .
  • The wider business environment changes – there are many markets that looked good five years ago (property as an example) but these crashed in the 2008/9 recession and have stayed in the doldrums.

Niche marketing positions can emerge if you’ve got the imagination to spot them, or they can be vacated when the incumbent steps away.

In declining industries, the decline can be very unpleasant and involve lots of red ink but the position of being “last man standing” can be very profitable and explains why some players in declining marketers will help competitors to leave the market.

Niche Marketing Myth 3 A Niche Shouldn’t Be Too Narrow

I talked about this in my article on niche marketing and differentiation.

You can work in a niche market but it doesn’t mean that you don’t have any competitors in that niche. A big niche often creates the opportunity for micro-niches with products and services designed for an even smaller group of customers with special needs.

Take my business as an example. I help small business owners to differentiate their businesses from competitors and that will often involve focusing in on one niche.

I am a specialist as an expert in differentiation and the variety is something that I love but I know that a rival coach or consultant could specialise in differentiation for hotels and restaurants. That’s two markets I am interested in so it could hurt my positioning. On the other hand I think there’s potential for a contradiction because industry specialists can apply industry recipes and in effect create local clones, much as a franchising business might do.

There is a risk that you can focus on a niche that is too narrow. The essence of niching is captured in the idea of bullseye marketing – a highly targeted match of what the customer wants and what you offer. Some times the bullseye is too small and you need to focus on the next ring out on the target.

Niche Marketing Myth 4 A Niche Has To Be Neat

This may seem a contradiction since you establish a niche position so that customers have a very clear understanding of what you offer and what makes you special but a couple of examples will help it to make sense.

The book talks about liquor stores in affluent areas that sell specialist wines but also sell a lot of popular, low-priced wines. The reason is simple, people want variety and just because customers can afford the most expensive bottles, it doesn’t mean they want to drink vintage champagne every night. Sometimes a couple of glasses of a pleasant, fruity plonk is all they want.

A second example is my own business and that of many other business advisers. While we can focus on a specialist subject, the relationship can easily move to trusted advisor because we get to know the owner and the business so well and our knowledge base often has to be broad to understand how the speciality fits in with other situations.

Are There Other Niche Marketing Myths?

Yes I think there are.

That you must operate within a niche market is a myth.

You can differentiate your business across a wide market and appeal to many customers. In some cases you don’t even need to think about niche marketing and differentiation because the business opportunity creates its own local pocket of demand.

The easy example are local shops and pubs. If there’s a gap in the market – perhaps because a business has closed (although this may be a warning sign) – then you can open and sell all the usual stuff without any consideration of these concepts. The geographical location creates its own local monopoly.

In the UK TV soap Emmerdale, The Woolpack is the only pub in the village which gives it a big advantage but it does have some indirect competition. Eric Pollard’s restaurant at the B&B and the cafe give villagers plenty of opportunity to eat out when they don’t want to cook for themselves.

Are there other myths of niching?

Do you agree or disagree with the myths identified?

Please let me know by leaving a comment.

in 3 – Your Strategic Positioning, Business Problems And Mistakes

Niche Marketing And Differentiation

I was asked “Paul, what’s the difference between niche marketing and differentiation?”

I can understand the confusion because niche marketing and differentiating your business are related concepts but you can:

  • use niche marketing principles and not be differentiated; or
  • differentiate your business and not practice niche marketing.

Most of the time, successful businesses do both – they are differentiated within a niche market.

Let’s see how they do it.

Niche Marketing Concepts

Niche marketing means that your business focuses on particular types of customers or customer problems to the exclusion of other types of customers and problems.

It’s what I think of as bullseye marketing.

The aim is to attract customers who fit the characteristics of the bullseye in a target and the further a potential customer is away from the centre, the less mutual appeal. A customer from an outside ring isn’t interested in the business and the business isn’t interested in the customer.

The opposite of niche marketing is the problem I describe in Any Woman Will Do Says The Desperate Man.  This is casting the net wide and lacks any appeal to anyone – it’s the sign of desperate marketing.

Niche marketing is powerful because the specific needs of particular groups of customers are not being fully met by more general suppliers. Customers are being forced to buy products and services which are in the outer rings of the bullseye target because they can’t find anything better and buying is better than not buying.

Imagine you’re on holiday in a place where you expect it to be warm and sunny but when you get there, it’s cold and rainy. You may find yourself buying a coat and umbrella that don’t match your personal tastes. You wouldn’t buy them if you were at home and had plenty of time and choice but you don’t want to be cold and wet.

That’s quite an extreme example to make the point of buying “make do” products but if you consider what you’ve bought in the last few months, it may well have happened more often than you’d have liked.

The basic dimensions for establishing a niche market position are:

  • Who is the target customer?
  • What is the customer problem and what is the solution?
  • Where is the business operating and where are the customers?

A niche market position requires a deliberate choice since it implies exclusion of customers outside the targeted area.

Many businesses only appeal to the local market because customers will only travel so far or it’s only economical for the business to travel a limited distance to customers. If all you have is a geographical restriction, then I don’t consider that you’re using niche marketing.

You can have a niche position with:

  • a specific who and general what – clothes for teenagers
  • a general who and specific what – hats
  • a specific who and a specific what – hand made suits for male executives

These may or may not be restricted geographically. The development of e-commerce stores on the Internet has made many niche markets commercially viable precisely because the products can be sold throughout the world.

This concept of whether the niche is big enough is important and the bullseye target analogy is useful again. Market research may show the following likely sales:

  • bullseye – £150,000  – no niche competition
  • inner ring £750,000 – no niche competition
  • middle ring £5,000,000 – two niche competitors
  • outer ring £25,000,000

Imagine you’ve done your numbers work and you know that you need at least £500,000 sales to have a worthwhile business which is going to generate enough profit.

This clearly shows that the niche for the inner ring isn’t viable but the inner ring is and gives you considerable upside. It can be further extended by making small incursions with specialised products into the middle ring without destroying your position.

On the other hand, the £500,000 needed for a viable business might be right but your research shows you:

  • Bullseye – £5 million – no niche competition
  • Inner ring – £20 million

Here I’d say that your business opportunity looks good but I’d question whether you’ve really identified a bullseye. Your business may be vulnerable to being micro-niched.

Differentiation Concepts

Differentiating your business is about establishing clear reasons for winning buyer preference.

The biggest name guru on competitive advantage, Harvard professor Michael Porter made it clear that businesses can be:

  • Differentiated in the wide market.
  • Differentiated in a narrow, focused market – what we’d think of as a niche market.

Personally I think it’s much more natural to differentiate in a narrow market because you can precisely target the needs and wants of buyers.

Differentiation in broad markets is often based on either unique technology protected by patents, networking effects (thinks Windows for PCs as the de facto standard operating system) or brands.

People will buy an iPad or an iPhone because it is Apple. The basic product functionality may be very similar to other makes but the differentiating factor is the brand – “I want an Apple because my friends have an Apple and I want to be part of the in-crowd.”

They will buy a BMW car because of the prestige of the brand name and the image of the ultimate driving machine.

My blog is devoted to how to differentiate your business and you’ll see that I believe there are seven key dimensions to differentiation which you can get to by answering who, what, how, why, where, when and how many. Your answers need to be both multi-directional (e.g. who can refer to whom the customer is, who you are as the business owner, who the employees are, who the suppliers are) and specific (if you define your business with general rather than precise words, you’ll lose the power of any differentiation.)

The Difference Between Niche Market Positioning & Differentiation

The cross0ver is clear in the core questions:

Niche marketing is primarily about who, what and where.

Differentiation is about who, what, where, when, how, why and how many and takes a broader view.

You can be differentiated by staking out a clear niche position and you’ll appeal to bullseye customers e.g. think of a business expert who has identified his niche as marketing advice for accountants in the UK.

That’s very clear on the who, what and where and you can see that staff retention issues for financial advisers falls well outside the specification but it would fit a wider definition of “business advice for professional service providers”.

Any accountant who wants marketing advice is going to be attracted to the specialist. It’s a bullseye.

But what if the “marketing advice for accountants” is a big market?

It will attract new competitors who have a choice:

  • Battling it out in the niche without any differentiation
  • Differentiating by sub-niching and focusing on marketing advice for small accountancy practices with limited marketing budgets
  • Differentiating by providing done-for-you marketing campaigns with a guaranteed return on investment of 500%

Having a niche may be enough to differentiate your business but you need to be looking for ways to go beyond it if a new competitor appears.

It’s no different from the shoe shop owner who makes a good profit in the town where he or she has a monopoly. The problems start when a new competitor moves in – and that may be another shoe shop or a supermarket superstore which sells shoes.

There has to be a clear reason for some customers to decide to buy from you.

My advice is to think “niche marketing AND differentiation.”

in 3 – Your Strategic Positioning

It’s very nice to build a business that is different and distinctive.

It gives you a feeling of superiority because you’ve created something that you can be really proud of.

But we can’t escape from the basic idea of differentiation…

Differentiation Must Be Profitable Differentiation

You differentiate your business because you believe you will make more profit than you will if you either get caught in the commodity trap or stay as a commodity and any business you win is by offering a low price.

Not all differentiation is profitable. You need to make sure you avoid the differentiation traps.

The 5 Differentiation Traps

First you can be different in ways that your customers don’t value – you don’t care whether I’m the tallest or shortest business coach in the world because my height is not one of your purchase criteria.

If you want your differentiation to be profitable, you must be different in ways that customers appreciate. I call these factors your order winners.

Second you can be genuinely different in ways that matter to your customers but you can hide your light under a bushel.

Differentiation will only create profit if the customers know about it and understand why your factors of difference create value for them through better results or a better experience.

A unique feature about your product or service only becomes a differentiating factor if customers understand the importance.

Third, you can fail the message to market test. You can have a great, well differentiated offer which is highly valued by one customer segment but if you send it to the wrong market, it will miss its target.

Different customers want different things.

Just think about clothes shops. What you want when buying clothes is very different from what your partner wants, what your teenage children want and what your parents want.

The choice of what you do has to be closely connected to whom you do it for.

To make matters more complicated, the same customer can want different things at different times.

The choice of hotels and restaurants may be very different for a business owner or manager when they are away on business than when they are buying for their family and friends.

Fourth, a classic differentiation trap is to increase your costs by more than the customer value you generate.

You do your market research and you find out that customers would love it if your product could have a longer battery life (think of a long-lasting smartphone for example). You research the market and you find that just like your products, your competitors products also need to be recharged every day.

After researching the product possibilities, you find that you can get a battery that will last 5 days. It sounds like a competitive advantage which will differentiate your product so you’re excited.

You buy the batteries, which cost £30 extra. You incorporate them into the product and you do a big marketing campaign only to find that no one buys.

The extra battery life will cost the consumer an extra £120 including sales taxes and profit for you and the distribution chain but the consumers don’t value it that much. The short battery life is an inconvenience but it’s not a critical inconvenience – it’s a “nice to have” rather than a “must have” and at an extra £120 price in the stores, it turns into a “can do without”.

The usual way to think about differentiation is to think about the price premium it can justify and higher price is certainly one way that differentiation can deliver profit.

The concept of the customer value maps makes it clear that providing extra value justifies a price increase if you stay on the fair value for money line. It can also create an irresistible offer if you move away and offer more value for money although it can trigger a price war.

The fifth way that differentiation can be a profit trap is to make promises that you can’t deliver. This is the distinction between shallow and deep differentiation.

Making big promises may convert leads into orders but failing to meet the promises won’t create a big group of customers eager to repeat the experience and buy again and again. I think the airline industry is the exception (Airlines suck).

This creates a bad experience and with social media, people love sharing their horror stories.

How To Have Profitable Differentiation

If you want profitable differentiation, you need to avoid the 5 differentiation traps

  1. Differentiating on factors the customers don’t value. Instead, differentiate on the factors your target customers value highly.
    .
  2. Having a genuine difference and not telling the customers. Be proud of your valuable differences and make sure no customer who wants what you sell, misses out through ineffective marketing.
    .
  3. Marketing a differentiated offer to the wrong customers. Get your marketing bullseye clear in your mind.
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  4. Differentiation that costs more than it earns. Make sure you are clear o the difference between nice-to-have factors and those customers really want.
    .
  5. Not delivering consistently on the differentiation promise. Repeat business is a key to creating a profitable business and you’ll only attract customers back if they believe they have received value for money.
in 3 – Your Strategic Positioning, Business Problems And Mistakes

Too Scared To Differentiate Your Business?

Let me be blunt. If you haven’t differentiated your business, is it because you are too scared to be different?

In a survey people said that there were more scared of public speaking than dying!

That’s a bit extreme but some people don’t want to be the centre of attention, all eyes on them, watching what they do and listening to what they say.

Or what about the nightmare of being invited to a fancy dress party, getting dressed up in your Superman costume and getting to the party and finding out that your hosts changed their minds and it has become a black tie do? Just thinking about it sends shudders down my spine.

It can be like that when you think about differentiating your business.

The entire point is that you are standing out, different… even exposed.

The big name gurus say that you must be differentiated to earn big profits.

You see the problems of not being differentiated in your own purchases each week. It is difficult to make a buying decision when all your options seem to be virtually the same along with the worry that you might make an arbitrary choice and it turns out badly.

Like me, you probably get frustrated when you can find plenty of people selling what you don’t want and no one selling what you do.

You may also see the problems of not being differentiated in your own business.

The symptoms are pretty common:

  • You find it difficult to attract leads.
  • Not enough of the leads you get convert into customers.
  • You have far too many conversations about price and really feel the pressure to cut your prices.
  • You find it difficult to say what’s special about your business.
  • Your customers show little loyalty and are tempted away as soon as a better price is offered to them.
  • Your best staff leave you and go and work for your competitors.

But there’s a feeling of safety about being one of the crowd.

You have a chance – even if it’s a small chance – of getting an order from anyone who enters the market because you haven’t made the tough decisions of ruling anyone out.

There’s a feeling of safety of doing what everyone else is doing.

  • Your competitors have a website so you have a website.
  • Your competitors advertise in Yellow Pages so you advertise in Yellow Pages.
  • Your competitors advertise in the local newspapers so you advertise in the local newspapers.
  • Your competitors add the special widget to their product so you add the special widget to your product.

There’s a glimmer of sense and a lot of madness in this approach.

It is sensible to look at your competitors and see what seems to be working well and to work around the theme.

If a lot of business is done through the Internet, then you should probably have a website if you can make it special.

But the world doesn’t need a lot of clones in any market.

We don’t need Microsoft 2 because we’ve got Microsoft.

Or Google 2 because we’ve got Google.

Or Apple 2 because we’ve got Apple.

Or Starbucks 2 because we’ve got Starbucks.

Or Aston Martin 2 because we’ve got Aston Martin.

The world doesn’t even want another Paul Simister and there’s not much of me to go around. Crazy I know but that’s life.

But we do want variations on a theme.

A PC operating system that doesn’t crash so often or slow the processor down.

A place to have afternoon tea with the emphasis on the quality of the tea.

A fancy car that James Bond will drive and I can afford to buy without cashing in my life savings and selling the house.

Clone businesses survive because the cloned business is too busy or too expensive (mmm supply, demand and prices are linked – that’s interesting).

But what happens when the market dips down, like in these tough times, the business that is being copied still attracts plenty of clients because they are still first choice. The copies lose business and being near the bottom in a declining market is a very vulnerable place to be.

Perhaps you shouldn’t be too scared to differentiate but too scared not to differentiate.

in 3 – Your Strategic Positioning, Business Problems And Mistakes