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.
