Strategic distinctiveness – essentially how unique your firm’s strategy is – can be critical to company success, allowing you to step away from direct competition with competitors by providing reasons why customers will specifically be attracted to your company. This article explores the concept – and why it is especially important to consider when developing a startup.
What is strategic distinctiveness?
If you have ever taken an introductory 101 economics class, most likely in the very first class you will have come across the idea of perfect competition. Possibly the most fundamental assumption of perfect competition is that all firms are identical (or homogenous), producing identical products.
Now in some markets, the reality is approximated by this ‘perfect competition’ state – if you think of a gas station, the assumptions of homogeneity approximately hold – all gas stations sell an almost identical product in an almost identical way. In other industries though, this assumption of homogeneity is a lot harder to hold – from technology firms to many consumer products companies, there are lots of dimensions on which the companies fundamentally differ.
Differences between how firms compete with one another – essentially differences in the strategy for how the firm will compete within a given market – are captured by the idea of strategic distinctiveness. Essentially the opposite of homogeneity between firms – and considers how different you are from other companies in your market.
Dimensions that you can be distinct on
To help illustrate what it means to be strategically distinct, it is useful to consider some practical dimensions on which firms can differ from one another. Essentially the idea gets at fundamental differences between the strategy of firms, and thus key choices that you make as part of your strategy – and may, in turn, be different from competitors – are all possible dimensions that you can be distinct on. This can include:
- Your manufacturing approach – are you for example vertically integrated or not
- Technology choices
- Choices influencing the quality or features of the product
- Firm location and sales channels
- After-sales support
One way of identifying possible dimensions that you can be distinct on is to systematically examine the key activities that firms in your industry undertake and exploring different ways of undertaking these activities.
Importance to business success
The benefit of strategic distinctiveness is that it allows you to step away from your competitors. It creates a local area where if customers are after your product offerings, they need to turn to your firm over others.
Unique reason for customers to come to your firm
Possibly the key reason to ensure that there is some level of distinctiveness to your firm is to give customers specific reasons to come to your firm. If you think of your own purchasing behaviors – there are certain loyalties that you are likely to have – that is, reasons why you go to a particular firm over another.
If you are able to develop a strategic position that is distinct from other firms, offering direct reasons for firms to prefer your company over the offerings of others, you are likely to be able to attract customers to your company over those of competitors.
Allowing you to charge a higher price
Having specific reasons why customers want your company’s products gives you opportunities to increase the price that you charge customers for your good or services.
If you think back to the situation of perfect competition, one of the implications is that no firms make an elevated profit – because all products are identical between firms, customers can simply select the cheapest one (in turn forcing all firms to charge a minimum price, just covering their costs). If on the other hand there are specific reasons for customers to come to your firm over others, there is now an opportunity to charge a premium price. That is, at least a subset of customers who value the unique features that your firm provides will be willing to pay a price above and beyond the bare minimum price for your specific offerings.
Reducing customer switching
A connected reason for making a set of strategic decisions that position your firm uniquely is to reduce switching by customers (particularly important for firms relying on repeat sales). Connected to the idea that firms will select your company because of its unique offerings, they are also likely to remain loyal to your firm because of your distinct positioning.
Protecting that distinctiveness: Can other firms easily change?
While distinctiveness is important, if other firms are able to easily adapt and replicate your firm, then your unique position is unlikely to last for long; If you become successful, other companies can pivot, adjusting their functions to match your positioning. This is the idea of mobility barriers within an industry – if it is easy to reconfigure a firm, adjusting strategic decisions to match a competitor, then profitable market positions are unlikely to be long-lasting.
Underpinning the mobility barriers, that is, how difficult it is for other firms to change to your company, is differences between firms in their resources and capability. If you have a very similar set of fundamental resources and capability to those of your competitors, then distinctions are likely to be more short-lived – other firms are likely able to adjust their offerings to match yours should you become successful.
On the other hand, if the dimensions that you differ on are more profound – underpinned by substantial different resources between you and your competitors – it is likely to be a lot harder for them to adjust their positioning to match yours.
Developing some level of distinctiveness between you and your competitors is the essence of strategic decision-making. It is what underpins your ability to attract customers to your company over your competitors – the key difference between perfect competition and the real world, where customers do have preferences between companies.
Key to success is identifying a set of dimensions that you can be unique on. For further thoughts on how to go about developing a unique position, free of competition, see your guide on blue ocean strategies and guide on what sets startups apart from established companies.
What is the assumption of identical firms – and why is it important? This article explores the meaning of homogeneous firms.
This article explores the role of entry barriers and mobility barriers at preventing new firms from entering your market, or existing firms from converging on your position.
This article explores how the 4Ps -product, place, price and promotion – connects in with other key strategic decisions a firm needs to take.
This article examines the four components of the 4P marketing mix: You product, its price, the place where it is sold, and how it is promoted.
This article explores the mean of resource heterogeneity – a key assumption of the Resource Based View of the firm.
Why are mobility barriers important for the presence of stable strategic groups? This article explores the connection between mobility barriers and strategic groups.
What are mobility barriers and why are they important for firms to consider? This article explores the concept and barriers that can make it difficult for firms to change their positioning.
This article examines strategic groups – groupings of firms within an industry that compete in similar ways.
Why is it challenging for firms to change the way that they compete in the market? This article explores difficulties faced with attempting to change the firm’s competitive position.