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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?

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