QUESTION: My company has just entered a new market with limited competition. Should I focus on differentiating my offering from the old way of doing things, or should I focus on the handful of businesses working to establish the market?
ANSWER: As with many issues in business, the answer to this question is, “It depends.” You should seek first to differentiate your product or service from the alternative that prospective customers in your target market segment are most likely to pursue if they do not buy from you.
Therefore, if members of your target market segment would most likely do things the old way if they didn’t buy from you, by all means focus on communicating how your offering is superior to the old way of doing things. Alternatively, if members of your target market segment who don’t buy from you would most likely purchase from one of your new market competitors, you should focus on differentiating your offering from them.
In making this judgment, it is critical to define your target market segment correctly. We’ll use handheld calculators as an example. When first introduced, they were, at least in part, a replacement for the slide rule (yes, unfortunately, we are old enough to remember this). If you were a calculator manufacturer in the very early days of this new technology and defined your target market as all people who used slide rules, you would have sought to differentiate calculators from slide rules. However, a more narrow definition of the target market might have yielded a very different answer.
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Many people employed as engineers and scientists used slide rules. They had been doing so for years. They probably weren’t going to change, at least not quickly. However, there was a group of early adopters who would likely move immediately to calculators. They were called students. In the mid-1970s, students stopped learning to use slide rules and migrated en mass to calculators. They no longer seriously considered slide rules.
If you defined your target market as “engineering and science students,” it would have done you no good to differentiate your product from slide rules. They weren’t going to buy a slide rule anyway. You would have needed to differentiate your offering from other calculators, because if a student didn’t buy your product, he or she would surely buy a different calculator. This competition led to the functionality wars between Texas Instruments and Hewlett Packard. The point is that defining your target market segment is critical.
It may well be that you’ll decide to focus on touting the benefits of your product versus the old way of doing things, because if a prospective customer doesn’t purchase your offering, they’ll likely do things the old way. However, remember that this strategy is likely to be successful only in the short-term. Once the new market is successfully established, you’ll be competing against those who helped you build this market. Eventually, you’ll have to differentiate your offering from theirs.
Our best advice is to differentiate your offering from your target customer’s likely alternative to purchasing from you. However, even if your initial marketing message will focus on why your offering is better than doing things the old way, don’t lose sight of your new market competitors. Have a plan for differentiating yourself from them, because at some point you will have to do so.
It’s a fair bet that if Texas Instruments had just focused on being better than slide rules, Hewlett Packard would have put them out of the calculator business in a hurry.
Doug and Polly White have a large ownership stake in Gather, a company that designs, builds and operates collaborative workspaces. Polly’s focus is on human resources, people management and human systems. Doug’s areas of expertise are business strategy, operations and finance.