Volume 4, Number 7 - July 11, 2006

Whether it is prescription pharmaceuticals, canned vegetables, or gasoline, we’ve all had cause to consider: Is generic product as good as its name brand competitor? For many of us, the answer emerges from how we think about managing risk and money. A brand name is typically assumed to be better, but there is likely some price differential, some duration of out-of-stock conditions, or some limit to its perceived superiority at which we conclude it’s not better enough.

Business purchasing decisions are similar. IBM and Microsoft both enjoy significant sales contributed by “nobody ever got fired for buying …” logic. Talk about risk management. If decision makers in your market don’t see your company providing an acceptable risk/reward, they look elsewhere.

While working for Perdue Farms in the 1970s I saw the power of differentiation impacting perceived risk. At a time when grocery store chicken was considered a commodity, Frank Perdue firmly believed that his product was superior. He just needed shoppers to
see that. His “fresh, never frozen” policy, the promise of meatier product and the distinct yellow skin covering Perdue chickens, bolstered by marketing
that made a big deal out of those attributes, changed the market’s perception of risk. Suddenly people
cared which chicken they bought. Chicken was no longer a commodity.

The recognizable yellow color was in fact the result of a sophisticated mathematical model that formulated feed mixes meeting genetic and nutritional targets while minimizing ever-changing ingredient costs. Branding supported higher prices for Perdue product while sophisticated operations minimized feed costs in a way that delivered market-recognized differentiation. Sales and profits soared.

Consider how Perdue’s sales and profits would have been suppressed by leadership that viewed chickens as inexorably resident in a commodity market where only price matters, or by fickle delivery of Perdue’s differentiation promises to the market.

The vision to create viable competitive advantage and then reliably and profitably deliver that advantage to the marketplace is vital. If you see your products as commodities, that’s what they will be. Perdue knew his market would care if he helped it understand why it should, and if he backed that promise with 100% reliability. Don’t underestimate your market, or yourself.

While differentiation can build your company’s future, too much market noise can create unproductive confusion. Witness Medicare’s recent spate of choices. Successful differentiation will meet these tests:

• The market cares about it
• It is real
• You deliver it reliably
• The competition doesn’t deliver it reliably
• The risk/reward equation is easily understood by the market

Failure on any of those points means you are counting on marketing rather than performance to win over customers. Marketing can be influential, but wouldn’t you likely be better off marketing real performance?

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