You can create a competitive advantage simply by offering a lower price, but differentiation advantage happens when a firm is able to obtain a price premium in the market that exceeds the cost of providing the differentiation.
For example, consider paper companies. Many of them offer the same types of products. Differentiation can be challenging, since there are only so many ways in which to make paper. Yet, some firms such as Avery offer services that help people use the paper, such as templates for making resumes, labels, and business cards.
One of the classic commodity products is steel, a product that does not differentiate easily. Some steel companies have been able to do custom steel making and create steel products that make the customer’s task easier and less costly when the customer chooses their steel products.
Analyzing differentiation involves the identification of product characteristics (supply side) and interactions between the firm and their customers (demand side). Firms that identify differentiation opportunities tend to offer enhanced value not only with product characteristics but also with services and added benefits not available from competitors.
PepsiCo expanded its portfolio beyond soda and potato chips when Indra Nooyi entered the company and took over as CEO. Pepsi, as a drink, always offered customers a reason to pay a premium for a relatively simple drink. In recent years, Pepsi lost significant market share in the cola business coming in third against Coke and Diet Coke. This lost market share was a reason for diversification. Pepsi brought Nooyi into the company to initiate its current strategy by diversifying its portfolio by adding healthier brands and products that can be consumed morning, noon, and night.
The real benefit of firms pursuing differentiation strategies is that the variables upon which a firm can differentiate are limitless. The basis of differentiation includes every aspect of how a product is made and delivered.
One obvious way to create a differentiation is to design products in a manner that makes them unique. Many product features are designed in response to customer preferences. Studying social and psychological factors can also affect product design. For example, using the cola example, Coke and Pepsi try to sell “the good life,” “the lively life,” or some rendition of this theme. While they each claim unique product design, blind test tastes show that few people (if any) can tell the difference among the widely popular cola brands. Thus, positioning products and how that brand responds to psychological factors is what makes for the differentiation.
When it comes to sustainability, part of these psychological factors may be to consider the conscious consumer. Many companies use this as part of their marketing and differentiation strategy. Tom’s of Maine, a toiletry product company, markets to a conscious consumer. Tom’s shoes, Whole Foods and Seventh Generation are all brands that market to these psychological factors.
Whole Foods has become so valuable as a differentiator that Amazon, an online purchasing platform, bought Whole Foods for $13.7 billion. Amazon sees an opportunity to make this valuable company even more valuable by offering delivery services for quality food.
Positioning products in a way that responds to psychological factors can be a key part of a sustainability business strategy and to a company’s differentiation. Here are a few ideas that may help you.
Marketing professionals refer to their “marketing mixes” (i.e., various components of the marketing function). These mixes include price, promotion, place (distribution and location), and product design. Our concern is with the unique marketing characteristics of “green” products and issues, often dubbed green marketing.
Green marketing is a term that is poorly defined yet widely used. However, green marketing and green advertising may be defined as promotional messages that appeal to the needs and desires of environmentally concerned consumers. These types of advertisements contain at least one of three criteria:
- Addresses the relationship between a product/service and the biophysical environment.
- Advocates a green lifestyle with or without highlighting a product/service.
- Presents a corporate image of environmental responsibility.
Advertising is a component of marketing and helps to promote products and services that support sustainability. Such products and services are often promoted via government and nonprofit organizations’ social marketing campaigns to encourage sustainable behaviors. Thus, this type of advertising is specifically developed to appeal to the needs and interests of consumers concerned with sustainability issues (e.g., the environment and social justice).
This type of advertising and promotion is viewed as social marketing because it uses commercial marketing approaches to influence voluntary behaviors of audiences in ways that are socially beneficial. One difference between social marketing and socially responsible marketing is that the former focuses on advertising and promotion to make sustainable behavior more likely, while the latter promotes products that are already regarded as sustainable.
Here is an example of how a social marketing campaign might change behavior: What if we wanted to conduct a promotional campaign to encourage people to consume less water? This type of promotion could focus on the consumer’s price and cost advantages (vs. emphasizing the environmental benefits). One study of such a campaign in Israel found that 75.6 percent of survey responders indicated that they were willing to save water after being exposed to the campaign promoting an average savings of 15 percent in water consumption. Yet, surveys conducted after the advertising campaign showed that only 38.1 percent of respondents thought they would continue to save water and money.
In general, green marketing has not lived up to the hopes and dreams of many managers and activists. Although public polls consistently show that consumers would prefer a sustainable product over one that is less friendly to the environment, they tend not to act on this intent. When consumers are forced to make tradeoffs between product attributes and helping the environment, the environment usually does not win. Some consumers perceive environmental benefits as costing more; others believe products are of lower quality or don’t deliver on their environmental promises.
Like any marketing effort, green marketing, using sustainability as a differentiator, and creating products and marketing products is a challenge. Yet this challenge may be larger than expected for sustainability differentiators. The ideas here can help overcome the challenge.
Daniel S. Fogel, CEO, SP3, firstname.lastname@example.org; 1-704-604-0085. Adapted from Daniel S. Fogel (2016). Strategic Sustainability: A Natural Environmental Lens in Organizations and Management. New York, New York: Routledge.