Competitive Differentiation: A Playbook for Winning in a Congested Marketplace
I talk with professional services clients every day, and I hear a lot of confusion and anxiety around the concept of differentiation.
Top executives at firms small and large have heard that differentiating their business is important, but many don’t believe they have any competitive levers to pull that will make them stand out. Others have tried out some so-called differentiators in the past but saw no results. They quickly lost faith. Some even say differentiation is a fool’s errand that has little relevance in the services marketplace.
In this post, I want to lay all these concerns to rest and explain how differentiation works, why any firm can benefit from a competitive differentiation strategy and how you can start putting one in place today. I can’t feed you all the answers – after all, every firm offers different talents in different service areas to different markets. So there’s no one size that fits every occasion.
But I can provide an easy-to-understand framework for building a competitive advantage through differentiation. And I can show you how to uncover the insights about your firm that you need to develop a powerful set of differentiators. I’ll describe the playing field, explain the rules and even teach you a few of the finer points of the game. By the end of this piece, you should be sufficiently grounded in the fundamentals to begin taking on the big shots in your field.
So let’s get started and begin with a definition…
What Is Competitive Differentiation?
Competitive differentiation is a process that helps buyers distinguish your firm from similar competitors and give them a compelling reason to select you.
It consists of two components: 1) one or more characteristics of your firm that your key competitors either lack or aren’t talking about, and 2) a strategy to promote these characteristics that will entice prospective clients to buy.
If you read this definition closely, you’ll notice something interesting: I don’t say you need to be radically different from your competitors (though if you are, so much the better!). Rather, you need to find something about your business that you can own and make a distinctive part of your brand. I’ll get into this in more detail a bit later.
I want to point out one other thing. Competitive differentiation is not the same thing as differentiation. There is a school of thought that says it’s enough that a business be different in any way. But my colleagues at Hinge and I don’t buy it. To engage with your clientele, you need to promote differentiators that they care about. Other differences can help, such having as a unique visual identity or a catchy slogan, but these only play a supporting role.
True differentiation takes place in the mind. It happens when a person connects your firm with an idea, when they think to themselves, “Ah! [Your company name here] — they’re the firm that’s known for __________.” If your prospects fill in the blank with something that’s both relevant to their businesses and isn’t associated with your competitors, then you have created a powerful competitive differentiator.
Let’s consider an example we all know. UPS may own the color brown (an unconventional but brilliant choice), but more importantly, they are also the world’s leader in package delivery and logistics. To be sure, brown helps people recognize UPS trucks and employees, but that color would have a lot less value if the company hadn’t already spent decades building a leadership position. Most people aren’t thinking, “UPS is the company that’s brown.” More likely, they are thinking something like, “UPS is the most affordable, reliable way to get my package to its destination.” The color brown and the company’s shield logo help reinforce and remind us of that message.
Does Differentiation Really Matter?
What about those folks who suggest differentiation doesn’t apply to professional services firms?
Here’s what one marketer wrote on his firm’s blog:
“Pursuing a strategy of differentiation is not just elusive for a professional services firm, it’s actually a flawed way of thinking. It puts the focus of your marketing on a comparison with your competitors when the focus should be only on your clients and their problems.”
While this argument sounds reasonable on the surface, it doesn’t reflect the way people make decisions in the real world. What’s more, it contains its own iceberg-sized flaw — one that rips a titanic hole in his line of reasoning.
Let me explain.
Buyers of professional services are confronted with an overwhelming array of choices in the marketplace. To make matters worse, the vast majority of these service providers appear to offer more or less the same services. And they say more or less the same things about themselves: they tout their inscrutable proprietary process, their great people, their commitment to quality service. They even look alike, with their blue logos and clichéd stock photos.
In this scenario, firms with either the most name recognition or the lowest cost are going to be selected. After all, what else do buyers have to go on?
Firms that are able to promote a differentiated message, however, stand an even better chance of attracting notice, and they can position themselves to outperform even their better-known peers.
I’m talking about firms that are willing to embrace focus and resist the impulse to serve all possible audiences. Differentiation and specialization, while not always synonymous, go hand in hand. Specialists have a psychological advantage over their generalist brethren. Buyers — rationally or irrationally — equate specialization with a host of good things, including more experience in the relevant area of focus, deeper expertise, an ability to address problems faster and with greater accuracy and a better overall experience. With great focus comes great expectations.
Specialists can also charge more. Specialists often command higher fees and are 3 times more likely to be high-growth firms than their non-specialized peers.
Now, what about that marketer’s claim that you should spend less time comparing your firm to competitors than thinking about your clients and their problems? This argument makes sense up to a point — you do need to understand your clients’ changing needs. Without an accurate assessment of client priorities and challenges, you won’t know what mix of services you should offer.
Which brings me to the giant flaw I mentioned. Differentiation is focusing on your clients and their problems. In fact a real differentiator must meet three hard tests. We’ll explore those in the next section.
3 Tests of a Differentiator
When vetting potential differentiators, you can weed out weak contenders by asking these three questions of each. If a candidate fails even one, eliminate it and move on to the others.
Test 1: Is it true?
Differentiators aren’t built on good intentions. They need to accurately represent who you are. Any whiff of dishonesty and your positioning is toast. Some firms tout their proprietary process, for instance, not realizing (or perhaps not caring) that it’s not substantively different from processes used by their competitors. Most buyers can sense when they are being bamboozled.
I can think of one situation when this rule may be bent. In the process of uncovering their differentiators, some firms realize they need to make substantive changes to their business so that they can really, truly distinguish themselves in the marketplace. They may resolve to specialize or fully embrace a strength of theirs. It could take them a few months or a year to get there. But so long as they are taking tangible steps to realize that claim, it’s probably okay to use that new specialty or characteristic as a differentiator. Just keep in mind, it must pass the next two tests, too.
Test 2: Is it relevant?
This is the test that speaks directly to the need to think about your clients and their problems. Do clients and prospects — real prospects — care about your differentiator? Does it resonate with them? Does it connect to that problem that keeps them up at night? Or is it just more marketing noise?
This can be a difficult test to evaluate because it’s easy to assume that clients share our feelings and opinions about our business. What you need is some distance. You may want to bring in an objective third party to provide a second opinion or, even better, to find out what your clients are really grappling with, conduct research.
At the very least, try this trick to change your mindset and remove some of your biases from the equation: begin by telling yourself that the differentiator candidate in question is not relevant to your clients. Then try to talk yourself into it — articulating exactly why and how it matters to them. If you struggle to make the case, then that candidate probably shouldn’t make the cut.
Test 3: Is it provable?
In a way, this is a corollary to Test 1. Just because a differentiator candidate is true doesn’t mean anyone will believe it. You must be able to point to strong evidence that supports your claim.
Thousands of firms say they hire only the best people, but they can’t all be telling the truth. There are only so many “best people” to go around, after all. The only way buyers can verify this claim would be to hire you and experience how smart and friendly your team is. And because they can’t hire every firm that makes this claim, buyers simply ignore it.
If you claim to have the best customer service in the industry, you better have a remarkable system in place to produce that level of service, some powerful client stories to tell and eye-popping statistics about the results you delivered.
Now, in most cases the burden of proof doesn’t have to be that high. But if you are trying to own a differentiator that buyers reflexively ignore, you will have to be extraordinary. That’s not to say it’s impossible. We once had a silicon chip engineering client who wanted to own the “best people” differentiator. They were actually able to pull it off because they could point to the fact that most of their employees held Ph.D. degrees. Their competitors did not hire many people with that level of education, so it was a clear point of distinction that could easily be proved.
Weak vs. Strong Competitive Differentiators
As you vet differentiators, it can be helpful to put them in some context.
Many so-called differentiators out there are actually commonplace platitudes — so desiccated and stale that nobody in the marketplace gives them a second look. It’s important to recognize these, as they tend to rise like zombies in many of the client differentiation exercises we conduct.
Here are a few weak differentiators that we encounter again and again:
- We hire only great (or the best) people
- We have a proprietary process
- We put the client first
- We deliver exceptional (or the best) client service
- We’re committed to excellence
- We deliver innovation
- We have a passion for what we do
- We are trusted advisors
No doubt you recognize some of these. You may even use one of more of them yourself. While they may sound magically delicious to you, they are the junk food of professional services marketing.
You can do better.
Let’s look at a few strong differentiators and see how they compare their weak counterparts above.
- We provide accounting services to multi-location restaurants
- We specialize in restructuring and turnarounds
- We work exclusively with Fortune 50 firms
- We are rethinking the future of healthcare
- We are the largest accounting firm in Wyoming
- We are the leading law firm for companies around the globe that want to conduct business in India
Let’s compare these two lists and see if there are any contrasts we can draw between them.
The first thing I notice about the first (weak) list is how broad most of the claims are. How are you going to prove that you put the client first? Or that you are committed to excellence? And what does excellence even mean, anyway?
I also notice that almost any company could say these things — they aren’t tied to any particular expertise, business model or circumstance. They have a generic quality to them. You could also argue, that most of these “differentiators” are qualities that every firm should be striving for, anyway. They are table stakes, the price of admission.
On the other hand, the second (strong) list is highly specific. These claims can be supported readily with evidence. These differentiators also tend to be very narrow in focus. They both stake out a position and exclude something else. Exclusion is a marker of a strong differentiator. It says, “because we choose to do this, we don’t do this.”
Let’s look at one differentiator in the second list that’s not like the others: “We are rethinking the future of healthcare.” This one is certainly broader than the others and tougher to prove, but in this case the firm (an actual client of ours) is building their reputation around thought leadership and their insights into the future of the healthcare industry. While it can’t be definitively proven, the claim can be supported with evidence — they have tenured academics on staff, they have written white papers on future trends in healthcare, they built a model that simulates different environments in healthcare, allowing them to test “if then” scenarios, and they offer services that help position hospital systems for major societal and policy changes that are fast approaching.
Your Competitive Differentiation Playbook
How do you actually go about differentiating your firm? In this final section, I give you a nuts-and-bolts, competitive differentiation playbook — one you can use to find, vet and select your firm’s differentiators.
Before I get started, however, I want to make an important point. The output of this process will only be as good as the inputs. If you rely on the opinions of a small internal team, well, that’s all you’ve got to work with. Your resulting differentiators will be a subset of the ideas that limited team brings to the table. In my experience — and I’ve been doing this for almost a decade — you have far better material to work with when you take the trouble to research your clients and prospects. That way you can see your firm objectively from an outsider’s point of view.
To do this research right, you should enlist the help of experienced third-party market researchers to conduct phone interviews with your audience. Professional researchers bring three big advantages over doing it yourself: 1) your clients and prospects are more likely to open up and speak honestly to an impartial third party; 2) they know how to design a valid survey that asks the right questions; and 3) they are trained to follow up on questions and probe for deeper insights — often this is where the best stuff surfaces.
You don’t have to conduct a giant study. Even a dozen interviews will provide a wealth of useful information. But that outsider’s perspective can make a big, big difference in the quality of the final product. Often, your clients see qualities in you that you aren’t aware of.
Now that I’ve gotten that off my chest, here are the four steps it takes to determine your differentiators.
Step 1: Identify Your Key Audiences
You need to know whom you are trying to influence when writing your differentiators. There are many ways to break down your audiences. At its simplest, your breakdown might look something like this:
- Existing clients
- Prospective clients
- Prospective partners
- Prospective employees
But if your client base is very diverse, you might want to divide those into finer categories, such as industry or even role (e.g., CEO, CIO, VP of Operations, etc.). Just don’t make it more complicated than it needs to be. The point is to list the kinds of people whom you will need to address with your differentiated messages.
Step 2: Compile an Initial List
Ideally, you’ll be armed with research when you get to the next step. In this second step, you will develop a list of characteristics that you believe sets your firm apart from competitors. The goal is not to address all the things your firm does; rather, they should be pointing out features that make it unlike other firms. You also may want to refer to this list of 21 ways to differentiate a firm.
Don’t be critical at this point. Just draft a long list. The vetting will come later. If you have research, pull it out and go over the findings together, one by one. Keep an eye out for anything that casts you as different from other firms. If the research includes verbatim responses — actual (but anonymous) quotes from survey participants — look for any patterns in people’s responses. Add any differentiator candidates from the research to your master list.
Now, when writing down your differentiators keep each one simple. Each item should be a single idea. Strive for concision and don’t feel like you need to explain each one in detail. Avoid jargon, when possible.
Step 3: Vet Your List
At this point, you probably have a lengthy list of differentiator candidates. It’s time to put them through (pardon the expression) an extreme vetting process. Prepare yourself, because most of them won’t make it out the other side.
That’s a good thing. It’s quality that counts. You can get a lot of mileage out of even one great differentiator.The first thing you need to do is run each candidate through the three tests:
- Is it true (or you are diligently working to make it true)?
- Is it relevant to your target audience?
- Can you support it with evidence?
Next, ask two more “reality check” questions of any candidates that are left standing:
- Could one of your key competitors claim the same thing? Be honest, here. If the answer is yes, you won’t really be setting your firm apart, will you?
- Is it actually different? It’s very easy to trick yourself when composing differentiators and find yourself writing something that sounds really great. Only problem is, it merely describes your firm without setting you apart.
Finally, check your finalists against my list weak differentiators. Occasionally, one of those squeaks in. Unless you can support it with a substantial amount of evidence, give it the boot.
So how many differentiators should you have at the end of this process?
Like most things in life, that depends. Most Hinge clients end up with 3-6 differentiators. But some walk away with just one or two. Once in a while, a firm will produce eight or more, but that’s a real outlier — and frankly, a tad impractical to put into use.
No matter how many differentiators you have, usually only one or two are true, defining differentiators — the sort that people will associate in their minds with your firm.
Step 4: Prioritize Your Differentiators
This is a relatively simple task: put your differentiators in order of importance. Of course, “importance” is subjective. But start your list with the differentiator you most want people to associate with your firm.
As you prioritize your list, keep these two criteria in mind:
- How important is it to your top audience?
- How strong is the supporting evidence?
Examples of Competitive Differentiators
Here’s what a final prioritized list of differentiators look like for two different professional services firms:
For an accounting firm
- We specialize in multiple-location restaurants.
- We are more than an accounting firm to our clients; we bring deep experience in the chain restaurant marketplace to every engagement.
- We provide an easy-to-use technology dashboard that helps restaurants quickly recognize emerging opportunities and threats.
- Our client satisfaction is exceptional, as demonstrated by our 88% referral rate.
For an architecture firm
- We bring a rigorous, scientific methodology to design—using the latest research to help us create more functional, efficient and inspiring spaces.
- We work at the core of communities—enhancing their ability to provide critical health, education, retail and civic services.
- We’ve been transforming northern Californian communities for over 70 years.
I want to point out that these examples represent not only two industries, they also demonstrate two different approaches. The accounting firm has a strong, unambiguous differentiator: it specializes in multi-location restaurants. Very few competitors will have this narrow a specialty, so it really helps the firm stand out.
The architecture firm, on the other hand, is promoting a softer differentiator: its scientific, evidence-based approach to architecture. While other firms may also use this methodology, this firm is “owning” it like no other, and it will build a brand conversation around it.
Today’s buyers of professional services are faced with the unenviable task of selecting the firm that best for them from a vast, homogeneous sea of options. Differentiation makes their job easier.
Of course, it helps firms like yours, too. If you’ve struggled to describe your firm in terms that are interesting or original, differentiators give you the raw materials to craft your story. They are also your first step toward positioning your brand in the marketplace and building true preference for your services among your target audience.
And while not every firm has a feature or specialization that is 100% unique, it’s important that you at least identify an aspect of your business around which you can build a compelling story — one that nobody else is telling.
Learn how to make your firm better known in the marketplace and leverage your expertise to build a powerful reputation. Check out our free Visible Firm® Guide today!
Download our free book Inside the Buyer’s Brain to learn more about what sets growth leaders apart from runners-up.
How Hinge Can Help:
Don’t know where to start? Hinge can help your firm develop winning differentiators that will put you on the road to greater visibility. Our research, positioning and branding services — as well as our flagship Visible Firm® program — are designed to do just that.
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