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October 09, 2014

Why brand differentiation still matters

Some people believe that differentiation is not important to brand success, but others seem it differently.

Some people believe that differentiation is not important to brand success. Others seem to have given up on the fight to differentiate their brand. That might be OK if all you need to do is sell more stuff, but if you want to grow profits, you had better continue to worry about differentiation.

An article in MIT Sloan Management Review: Summer 2012 Research Feature titled, 'Is It Time to Rethink Your Pricing Strategy?' states:

We find that many managers in (competitive) industries mistakenly assume themselves to be in a 'commodity' business. They then neglect the possibility for differentiation and customer value creation and resign themselves to competing solely on price.

The authors of the article, Andreas Hinterhuber and Stephan Liozu, suggest that seeing your product as a commodity tends to be a self-fulfilling prophecy. They propose that through deeper research into customer needs, almost any product or service can be differentiated.

I have no doubt they are right, although I might suggest that the use of the word 'needs' might focus us too single mindedly on product differentiation. Differentiation can be achieved in a number of different ways, including positioning, communication and design. A brand needs to be perceived as different by its consumers and that difference may be more a feeling than a fact. For less considered purchases, tone of voice may be enough to differentiate the brand from its competition.

Maybe it is worth reminding ourselves why differentiation still matters. I see three ways in which differentiation influences brand success:

First, a difference makes it easier to choose between close alternatives.

Second, a difference helps people justify paying a price premium for a brand.

And third, a difference allows us to easily rationalize our purchase, making us feel more satisfied with our choice.

All of our research finds that if people perceive a brand as meaningfully different they will be willing to pay more for it. When we merge consumer survey data with behavioral data, we find that people who believe a brand is meaningfully different on average pay up to 22 percent more than those who do not. That difference can have huge profit implications, so maybe it is time to renew the fight to differentiate your brand.

Author: Nigel Hollis,
Global Analyst at Millward Brown

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