The main objective of strategy is to make different choices that will enable the development of a competitive advantage. The latter aims to achieve the strategic ambition.

Differentiating yourself is therefore crucial.

Here are 3 starting points for exploring ways to create this crucial differentiation.

1. Serving different customers or customer needs than the competition

It is possible to serve different customers, different needs, or even develop a different service offering.

We can think of all the “customer” elements of the business model canvas. This includes distribution channels and customer experience components.

These elements enable us to be unique in how we create value for customers. Let's think about:

• Targeting a specific market segment: Focusing on a precise market segment makes it possible to better understand its needs and adapt the offering accordingly. This can be done through geographical, demographic, psychographic, behavioral segmentation or even through jobs-to-be-done (JTBD).
• Offering a unique proposition: Developing products or services that meet needs that the competition does not satisfy. This may involve innovating, offering a unique customer experience, or focusing on a particular aspect of the product or service.

Example

One can think of Nespresso, which positioned itself in the “high-end coffee capsule market” by offering superior quality coffee machines and capsules.

The company targeted a specific market segment (demanding coffee lovers) and developed a unique offering (a luxury coffee experience) to distinguish itself from the competition (including Keurig but also all combined machine/coffee offerings).

2. Offering different relative prices than the competition

Choices related to prices affect both relative prices and potential payment methods such as subscriptions. It is therefore possible to explore a multitude of potential options.

At the base, however, it is possible to think of cost leadership or differentiation:

• Cost leadership strategy: Becoming the leader in terms of costs in your sector makes it possible to offer lower prices than the competition and attract price-sensitive customers. This can be achieved by optimizing production processes and the supply chain, reducing cost of goods sold, or seeking economies of scale.
• Price differentiation strategy: Offering products or services at a higher price than the competition by justifying the difference through added value perceived by customers. This can be done through quality, brand image, exclusivity, or innovation.

Examples

EasyJet and Southwest are examples of low-cost airlines that have successfully differentiated themselves through their low prices. The carriers implemented a cost leadership strategy by reducing their operating costs and offering low-price services.

Apple, for its part, focused on differentiation. The company focuses on the brand image of its products, their ease of use, and their quality. All of this allows it to demand a “premium” price for its products.

3. Performing different activities than the competition

The choices made for the first two elements of the strategy require the coherent alignment of the different means required for implementation. However, in a scenario where the organization would have made similar choices to its competition regarding customers and prices, it is then essential to execute different activities from the competition.

The various choices relating to the supply chain, partners, and key activities allow for unique configurations:

• Innovate: Develop new products, services, or processes that allow you to stand out from the competition. This may involve research and development, disruptive innovation, or the adaptation of existing technologies. Mastering the innovation process and contributing to continuous exploration are essential.
• Modify the business model: Rethink the way the company creates and captures value. This may involve offering complementary services or moving towards a collaborative economy model. The entire business model is then a potential source of innovation.
• Outsource certain activities: Focus on the company's key activities and outsource the others to external providers. This can reduce costs, improve efficiency, and focus on the most important aspects of value creation. “Make or buy” decisions, resource allocation, and partnership management are key activities in the supply/value chain.

Examples

Amazon revolutionized online commerce by proposing a unique economic model. The company focused on creating an online sales platform and outsourced most of its logistics activities.

We have also discussed Intel's choices in vertical integration as opposed to the business models proposed by TSMC and Apple for chip manufacturing.

Starting points to prioritize for differentiation

These starting points for exploring strategic choices constitute a solid framework for creating a competitive advantage.

By exploring the center of gravity of competitors' business models, it is possible to generate interesting options that allow you to stand out from the competition and increase your chances of success.

It is important to note that these three starting points are not mutually exclusive. Companies can combine several of them to create an even more effective strategy.

This combination then makes it possible to create a source of competitive advantages that are more difficult to copy.

During your next strategic review, feel free to explore these starting points freely. You might discover a very interesting source of advantage to exploit.

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As always, thank you for being with us and have a good week,

Eric L'Heureux