The legendary Harvard Business School professor Michael Porter summarized strategy in his brilliantly succinct way when he said: “The essence of strategy is determining what not to do.”
Porter also reduced strategy down to three fundamental options:
- Cost leadership
If you want to add some complexity, you could make a case for differentiated focus, but that’s really just differentiation or focus depending on the situation. So here are the options for strategy, including not participating and ending up being stuck in the middle.
Without a strategic advantage, or strategic target market focus, it is very difficult to make a claim for a premium price, and in the long run, very difficult to be competitive. I would like to focus on one strategic area we spend most of our time on at SCG: differentiation.
In serving business-to-business companies, we noticed an unmistakable trend towards parity in the ’90s. Global competition made it increasingly difficult to differentiate the formal product. As we developed our own approach to primary research seeking to uncover market insights for differentiation, we came upon an insight that is still effective for our clients today: You have an opportunity to differentiate your brand along three levels of product, which opens the door to create a competitive advantage for every company willing to do market research.
Three Levels of Product: Core, Formal and Augmented
The example below shows the three levels of product we developed for a very successful commercial tile and grout restoration and maintenance company. Note the core product (better than new) is the essential benefit of their offering. The formal product (which in this case is a restoration service) is expressed as a proprietary process. They add a variety of augmented (value-added) products that allow them to lower the sales friction, such as free demos, extended warranties, and training. No mention is made of price, because they deserve a premium price because of their strong differentiation.
Primary research is especially helpful with differentiation because the market will tell you what is most important to them. This allows you to prioritize your messaging to align your core and augmented product offerings to their stated needs. The formal product is what they buy, but it’s often the core and augmented product that helps you market more effectively and justify a premium price.
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