3 Differentiation Strategies To Gain A Competitive Advantage

Let us take a closer look at what mastery of each value discipline looks like:

1. Operational Excellence

The term “operational excellence” describes a specific and strategic method of producing and delivering offerings to consumers. To be the leader in operational excellence, you must consistently provide reliable offerings at competitive prices with minimal difficulty (e.g. eliminate intermediate production steps, reduce transaction costs, etc.). Organizations that are leaders in operational excellence must also have highly efficient processes supported by streamlined information systems. Since these organizations build their entire businesses around these objectives, they do not look or operate like other companies pursuing other value disciplines.

Example: Walmart

When you think of cost leadership, you think of Walmart. Their “Save Money. Live Better” slogan emphasizes low prices for their customers, and it has helped them become one of the largest companies in the world. Walmart delivers the most value to its price-sensitive customers by offering the lowest prices compared to competitors. How does Walmart offer such low prices?

Walmart’s internal logistics are extraordinarily streamlined, relying on technology and inventory management systems to help reduce costs that would otherwise be passed down to the consumer. A couple of examples:

1. Walmart reduces material usage, standardizes retail displays, and slashes labor costs related to stocking shelves by using retail-ready packaging (RRP).

2. Walmart’s on-time in-full program (OTIF) logistics program demands suppliers meet specific date, delivery, and fill rates. If suppliers are not able to hit the stringent requirements, substantial fees are levied.

3. Walmart forces suppliers to put in their own orders and forecasts so that they do not incur labor costs related to this.

2. Customer Intimacy

If you want to pursue customer intimacy, focus on segmenting your offerings to match the exact needs of your niche markets, providing an offering that is superior in value. To excel in customer intimacy, you must combine customer knowledge with operational flexibility to respond quickly and to unique customer requests. Customer-intimate companies are willing to spend more to build loyalty over the long term, focusing on lifetime value rather than single transactions.

Example: Warby Parker

Warby Parker, an online retailer of prescription glasses and sunglasses, has the reputation of being one of the most customer-intimate companies in the market. A couple of examples:

1. From the moment you land on Warby Parker’s website, you take a quiz to determine the right frames unique to you through highly interactive activities.

2. Warby Parker allows customers to order multiple frames with the ability to return the frames you do not like free of charge, leaving you with good-looking glasses and money in your pocket with maximum ease.

3. With the recent addition of a pupillary distance exam on its website, Warby Parker goes beyond eyewear, allowing users to determine which prescription they should get with just their phones.

Warby Parker is a great example of why paying attention to product design and user experience is crucial from the early stages of product development. Further, it goes to show that customer intimacy can be achieved without having any physical interaction.

Source: Warby Parker

3. Product Leadership

The most difficult value discipline to excel in, being a product leader, means introducing new offerings that consistently enhance the customer’s use of the product and making rival (and sometimes their own) offerings obsolete. This risky endeavor results in companies being fearless innovators who are always market leaders.

Companies excelling in product leadership do not hesitate to enter the market (even if the offering is imperfect). The belief is that you can always iterate on your offering over time, but you can never be a market leader if you are a late player. For product leaders, it is better to make a wrong decision than to make a late one or no decision at all.

Example: Dyson

A global leader in innovation, Dyson stays competitive and innovative by dedicating 4,000 engineers/scientists and $12 million weekly to R&D. As a result, Dyson has introduced multiple world-first products:

1. After 5,127 prototypes, James Dyson had successfully invented the world’s first bagless vacuum after founder James Dyson became frustrated with his vacuum accumulating dust and quickly losing performance.

2. After 650 prototypes, Dyson debuted their Bladeless Fan in 2009, which expels 450 liters of cool and smooth air that is quieter and more efficient than competitors.

3. After 600 prototypes, Dyson introduced the world’s fastest blow dryer in 2016, which includes Dyson’s smallest digital motor, reducing noise and preventing heat damage.

Being a product leader has helped attract more value-centric customers, which helped boost Dyson’s annual revenue from $0.89B in 2010 to $5.4B in 2019. Thanks to their massive investments in R&D, Dyson products continue to outperform the competition:

Source: Your Best Digs