Content

Introduction

Chapter 1: Selling cheap is an option
Very few businesses can compete on price
What comes because of price, goes away because of price
Value yourself in order to be valued by others
Confronting price wars
Praying is not a marketing strategy

Chapter 2: If Clients don’t Perceive a Difference, Decide on Price
Challenging the imminent commoditization
When there’s no differentiation, price will be lowered
If you have to lower the price, do it without destroying value
The first thing to sell is the seller
Price is a relative perception of value

Chapter 3: Not Everyone Wants to Buy Cheap
Competing on price is optional
Price isn’t everything
Be proud of your price
Why companies compete on price
How to stop competing on price

Chapter 4: Stop Chasing the Wrong Customer
The problem of trying to sell to anyone
The majority won’t be your customers
Niche doesn’t mean small
The wrong customer versus the right one
How to define your market when you don’t have customers yet

Chapter 5: The Art of Differentiation
The endless search for differentiation
Differentiation pays off
Demystifying the search for difference
False differences

Chapter 6: How to Design your Difference
Ask your customers
Can’t find a difference? Create one
10 alternatives for differentiation
How to identify the most profitable difference

Chapter 7: How to Test your Difference
Different might not mean unique
Strengths aren’t differences
Three characteristics of a good differentiator
Testing your difference on a small scale

Chapter 8: How to Communicate your Difference
Communicating your difference in advertising
Communicating your difference with a slogan
Communicating your difference through the salesperson
Communicating your difference in the brand experience
Communicating your difference at every contact point

Chapter 9: Differentiation is a Never-ending Process
When to renew your difference
Evolve your uniqueness
Adapting to continuous migration
Happy differentiation

Chapter 10: 100 Examples of Differentiation
10 Examples of Positioning yourself differently
10 Examples of Product features
10 Examples of Service level
10 Examples of Storytelling
10 Examples of Market niche
10 Examples of Customer experience
10 Examples of Specialization
10 Examples of Distribution
10 Examples of Design
10 Examples of Processes

10 Unbreakable Laws to Stop Competing on Price

Acknowledgements
About the Author
Notes

Chapter 1

Selling cheap is an option

Businesses can’t set higher prices for just any reason. Selling at higher prices means creating value for customers and being able to charge for it. Creating sustainable value has a price, so the vast majority of companies need to leverage that price.

Continuously training salespeople to better advise clients costs money. Using high-quality raw materials to improve product performance costs money. Having spacious stores that are comfortable and conveniently located costs money. Offering training to customers costs money. Maintaining a positive work environment in which employees can provide friendlier service costs money. Implementing technologies that make processes simpler costs money. Developing more functional, environmentally-friendly packaging costs money. Delivering faster costs money. Responding responsibly to guarantees costs money.

All of these elements are aspects of your value proposition, and if you were to simply sell cheap, it would be very difficult to provide these benefits to your clients in a sustainable way. If you choose to offer memorable experiences and delight customers, then you need money to do so consistently. Of course, not every customer will be willing to pay for these benefits, and that’s okay. Those customers aren’t your target market.

Being costly is different than being valuable. Something is expensive when customers perceive that it costs more than the perceived benefits they’re getting from it. On the contrary, something is valuable when although it has a high price, it equals or exceeds customer expectations. Although we refer to high-priced products as “expensive,” they aren’t all actually “expensive” or costly – some are valuable. It depends on what we get in return. Think about toll fees. They’re not all the same. Some are more “expensive” than others. However, when this increased value is reflected in the quality of road infrastructure (well-maintained roads, proper lighting, multiple lanes, highway security, and signage, among other features), there’s a perception of value.

Selling cheap is, of course, an option. In fact, that’s what many companies end up doing as their only alternative to confronting competitors that focus on price. The problem isn’t selling at lower prices, the problem is that unless you have a strict control of costs, synergies, and efficiencies, lower prices may lead to ruin. In addition, selling cheap leaves little room to maneuver, so you will have to limit the benefits offered. And, as a result, you will end up being very similar to anyone else and might be easily replaced.

I’m not against selling cheap. In fact, in many industries that is the goal: reduce costs to lower the price and allow more people access to certain products or services. The challenge is to lower prices as a result of cost reduction without affecting profitability. Netflix, for example, has started generating its own content, arguing that it significantly reduces the cost per hour to produce its own House of Cards than it does to license all of its programming . This also further allows the company to offer unique and differentiated material.

Uber has UberPool, a service in which several people going in the same direction share a ride, allowing them to pay far less than they would for an exclusive ride and reducing congestion at the same time. In these cases, lowering the price is the goal.

Telecommunication companies reduce their prices so more people have access to broadband internet services just as airlines lower ticket prices so more people can travel. The decline in prices isn’t just a result of the law of supply and demand, where more competitors offering interchangeable services increase the pressure on prices. Lower prices may also represent a market expansion. When these industries lower their prices, they also expand the overall number of people who can afford to access that market.

Low prices are a form of competition. They’re very demanding and dangerous, but they’re definitely an attractive alternative for certain types of customers. Just look around at any business sector and examine the main selling argument: price. However, given that the vast majority of companies can’t afford to have the lowest prices (because they don’t have the cost controls required to provide a robust value proposition and still be profitable), the alternative is to differentiate in order to compete efficiently. Differentiation allows many organizations to offer significant value propositions to their customers because they have the resources to support and maintain them. It’s difficult to survive being more expensive if you have no relevant argument to justify it.

Chapter 3

Not everyone wants to buy cheap

When a brand doesn’t differentiate itself, it becomes part of a huge group of interchangeable options. Without differentiation, there is no incentive for the customer to select it over another. When all options look similar in the eyes of the customer, the decision will be based on price and the customer will be indifferent.

There’s a solution, though, and it’s entirely in your hands.

In April 2015, IKEA conducted a price experiment in one of its Madrid stores. The company added a zero to the price of a mattress already on display, taking it from 449 to 4,490 euros. To make sure the display matched the expensive price tag, the memory foam mattress was placed on a special lit base with a sign that declared it “New!” The original product name, Myrbacka, was switched to Fördomar.

Then the company studied customer reactions, which were swift. Shoppers viewed it as a better quality mattress and commented about the comfort and fit, even though it was the same, lower-priced mattress displayed in the past. IKEA reported that mattress tests increased as much as the fake price did, and that people used “infinitely better” to describe the “new” mattress .

The experiment proved once again that when something is cheap, it isn’t valued. Price is a relative perception of value. It shows how you define what you sell and how you can escape the monotony of the markets. We aren’t victims, we’re protagonists.

Competing on price is optional

I once read a wonderful story from Bernadette Jiwa that went more or less like this: Once, a hair salon displayed a sign proclaiming “Haircuts for $20.” Soon after, his neighbor posted a sign that said, “Haircuts for $19.” A few days later, haircuts reached the incredibly low price of $12. It was virtually impossible to own a profitable hair salon under those conditions. Finally, one desperate competitor made a courageous and resourceful decision. With great pride, he posted a sign announcing, “We fix $12 haircuts.”

The moral? You decide what kind of people you want to attract and what story you want to tell. It’s in your hands.

It sometimes seems like we are forced to compete on price. Faced with cheaper alternatives or competitors who continue to add benefits for the same amount of money, we feel that the only way to do business is to lower the price. But if we lower the price, we will hardly achieve our sales targets.

The good news is that lowering the price is optional. Of course, you can’t simply sell at higher prices without a reason. Consumers are more informed than ever, reading the fine print on labels, consulting the Internet, and getting referrals from other consumers. As we saw, the price is a perception of value for customers, so that value should be reflected in multiple benefits. It isn’t about how to make it so that the competition doesn’t lower the price, nor is it about how to change the customers’ mindset so that they don’t object to the prices. Neither customers nor competitors are under your control. Focus on the things that you do control and can adjust so that in the end, you can stop competing on price. You decide to whom and how you sell.

Competing on price is optional, because it’s in your hands to decide who you want to attract (people with a specific interest in whatever problem your product or service solves) and the story that you want to tell (your difference, as a basic reason for preferring you over the competition). That’s what the game’s about. Be relevant to a specific group of customers who appreciate your product or service and are willing to pay for the value it generates. Although later we delve into identifying the market segment that makes a perfect match with your value proposition, for now we should recognize that focusing on the customer profile for which our product or service is best designed doesn’t mean reaching fewer customers. It means reaching better customers.

When you can clearly understand that what you offer isn’t for everyone and that not everyone will appreciate the benefits you strive to deliver, your approach to the market changes. The people you want to serve are the people your business is designed for. You will continue improving in order to achieve a perfect fit with them. The people you decide to serve determine the whole business model, from how much to charge to how to design your services, from the size of the product portfolio to the delivery times. All business variables will be determined by the consistent fit between your brand and the people you’re serving. This will determine which things you should focus on to make your value proposition consistently relevant.

While initially the concept looks scary, prioritizing your business for a specific customer profile brings enormous clarity. You will stop trying to be everything to everyone. In addition, the best reward you can probably get is that these people won’t only become your best customers, but they will become your best promoters and most fervent fans, too. These are people who want you and your company to succeed. This doesn’t happen very often. Passionate customers who are truly happy to do business with us aren’t common. In the long run, this is what ends up making the difference. Customer relationships last longer when you specialize in serving and understanding the specific audience that appreciates your value proposition.

The business model can’t be questioned every time a customer says that they don’t like or value something you’re offering. It may be that they aren’t the type of client you’re looking for, but it doesn’t mean the business model is wrong. The business model is correct; it’s the client you’re trying to sell to that’s wrong. Instead of trying to convince everyone who passes by to buy, you must clearly choose the ones who are the best match for your value proposition.

You don’t want to change your business model because a potential customer doesn’t like it. You can make adjustments, of course, but what isn’t negotiable is whether you’ll deliver less value just to sell cheaper. Sooner or later, this will affect your differentiation and positioning. You can’t give up what makes you special simply to be consistent with cheaper options. This makes no sense. There are people out there who are willing to pay for the better options you offer.

If we eliminate benefits that are essential and make us different, we’re destroying the brand’s identity. We can’t offer the extraordinary level of service we’re obsessed with or maintain inventory levels if we’re operating at the very limit of profitability.

Build the company you want with the standards that customers want. Make something truly different. Break the mold. Offer an alternative to customers who are tired of having to accept that all companies offer the same things. It’s not that people aren’t willing to pay for better solutions, it’s that we need to actually provide better solutions.

For example, Canaima, a company that sells construction materials, needed to figure out how to improve bulk sand sales . People usually bought sand in a store based on how much they needed. It was immediately loaded with shovels onto a truck or packed into bundles. Sellers thought this was the cheapest way to do it, and they thought that people liked buying it this way – until they decided to improve the process. Instead of expecting customers to wait for them to shovel sand into the truck or bag it, they began to offer pre-packed sand.

“I decided to have it ready from the day before and create a measure of new sales, selling it in by sacks, and recovering the cost of the manual labor and packaging,” said John Jairo Salazar, company manager.

The purchase reference price is cubic meter, the equivalent of 200 shovelfuls of sand. Until then, a cubic meter was sold in 20 sacks of 10 shovelfuls each, at a price of $22. Each bag was very heavy and the process was slow and expensive for the customer. Canaima innovated by packing it ahead of time into smaller, secured sacks using exact measurements. Now, the same cubic meter sold in 25 sacks of eight shovelfuls each is priced at $26.50. The benefits to the customer were so highly valued that although it cost 20 percent more, sales increased.

“We have increased sales by 30 percent and generated new employment: I hired a person who starts at 5:00 p.m. and packs 250 sacks daily. Many times we don’t have enough. We have had some days where we sell up to 600 sacks. The customer doesn’t mind paying more, knowing that they get an accurate measurement, delivery is fast, there is always availability, it’s easy to handle and transport, there is no waste, the vehicles that transport the sand and where we work are cleaner, on top of receiving all of the sacks securely packaged,” adds John Jairo. Currently, sales of the sand bags represent 50 percent of the business’s total sand sales.

Competing on price is optional. You decide what kind of customers you serve and what story you want to tell.

Chapter 5

The art of differentiation

The search for differentiation has been a constant in business for more than 80 years. In fact, the term “differentiation” was coined in 1933 by American economist Edward Chamberlin in his book, The Theory of Monopolistic Competition. In it, he explained that a provider could charge more for a differentiated product than “perfect competition” (where no one player is dominant) would allow.

Over the years, many business strategists have suggested that all companies should differentiate themselves, or risk fading over time in comparison with competitors that sell something similar for a lower price.

The endless search for differentiation

We have long sought out differentiation as if it were the source of eternal youth. In 1961, Rosser Reeves explained the unique selling proposition (USP), which urged brands to look for some sort of unique and differentiated concept. In 1980, Theodore Levitt wrote in his Harvard Business Review article, “Marketing Success Through Differentiation – of Anything,” that there are no commodities. Instead, all goods and services can be differentiated.

In turn, marketing expert Philip Kotler introduced and expanded on the concept of the variable product, arguing that there are several levels, calling one of them the “augmented product.” At that level, when a product increases intangible benefits (such as technical support, after-sales service, warrantees, and so on), it generates differentiation and preference. In 1985, thought leader Michael Porter defined differentiation strategy as how companies look to stand out so they’re preferred by buyers. Then, in 2000, Jack Trout (famous along with Al Ries for the concept of positioning) proposed in his book, Differentiate or Die, that differentiation is life or death for a brand.

With the evolution of markets and consumer habits, differentiation has gone from being something related to the product alone (as in the Industrial Age) to something built on multiple variables so a brand, business, or organization excels in the eyes of prospects. Differentiation has been on the agenda of businesses for years, yet remains a task stuck on the to-do list for too many of them.

Chapter 7

How to test your difference

For many, changing what you’ve been doing for years is simply not an option. You have so much inertia that the cost of leaving behind what’s known and taking a turn in a new direction seems too risky when you don’t know whether something’s going to work in the end. Just thinking about changing direction looks like too much work.

This is where you start to evaluate whether differentiation is worth it. Besides, how do you know that your difference really is a difference? You might be wasting money on things that aren’t appreciated by customers because all that glitters is not gold. A novelty isn’t a difference.

Different might not mean unique

The challenge of differentiation never ends. You’re constantly looking for alternatives so customers will prefer your product or service. You plan to improve it and think that because you’ve added something new, you’ve got a difference that customers will care about.

The difference between added value and added cost

Not everything you add is an added value, thought. An added value is an additional benefit that the market highly appreciates. And that is where the difference lies – it must be appreciated by prospects. It must be something that solves a need, desire, or frustration and does it better than anyone else.

These aspects generate preference and send people to your brand. If the additional benefit you offer isn’t something the market craves or isn’t enough to make them deviate from their usual approach – staying with their current provider, product, or service – it will simply be an added cost.

Essentially, an added cost is an additional investment your company makes to offer customers benefits they don’t appreciate. These additional aspects don’t modify consumption habits. If they don’t generate preference and the market isn’t willing to pay for them, you will simply have added costs without improved value perception. What you deliver now costs more, but people aren’t willing to pay more for it. It ends up being a useless expense.

Chapter 9

Updating differences

Differences are transitory. The strategy needs to evolve continuously because customers and markets are changing faster than ever. Once you have designed a difference, you know the process you will use again. Be aware of the market’s transformations, its expectations, and how you could meet them better every time. Don’t wait until it’s too late, take the pulse regularly. Differentiating yourself is a continuous process of anticipating new demands and envisioning new things that will amaze your customers, so start working on them as soon as possible. Don’t expect customers to take the initiative and tell you what they want next. You must read between the lines, imagine what could be done but nobody is doing yet, and start trying new things.

This whole exercise of designing your difference hasn’t been a one-time process; it has been a first-time process. You can’t fall in love with a great argument that’s relevant for your customers today because it may be obsolete tomorrow. Holding on to what has worked is the beginning of the end. Of course, you will take advantage of it when things are going well, but you can’t rest on your laurels assuming that it’s going to be sustainable for s long period of time.

A few decades ago, differences could remain for many years. Renowned brands would leverage their exclusive access to platforms that weren’t available to the vast majority of companies that wanted them. Important investments in research and development, marketing, new technologies, massive media, access to raw materials, and dominant distribution channels used to make an oligopoly of most industries that were dominated by four or five companies. While many sectors are still dominated by a few players, access to technology, capital, markets, and infrastructure has grown significantly. Today, we see new arrivals challenging hundred-year-old organizations.

What made it possible to dominate those markets is more available to other players now. This implies that a company can enjoy its difference for a shorter period every time. So it’s not about designing a great difference, expecting it will get you ahead of the competition for 10 years, but rather creating small differences that continuously get you ahead every two or three years. It’s not about engraving the differences on stone, but about transforming and developing them.

There’s an explosion of new companies; this will only increase during the following years. We will witness unprecedented innovation and audacious business proposals that will redefine the pre-established status quo. Nothing will stand still. Century-old industries will be challenged by agile businesses that leverage new technologies and talk to a new generation of customers. No company can be overconfident because of its past victories or size. It will be constantly threatened by hundreds of businesses thinking out of the box and winning people over with their specialized products and authentic, personalized service.

The offer will be a lot more diverse, both locally and internationally, filled with flexible companies that are convinced that things should be done differently. The most threatening competitors will be companies yet to be born, initiatives that already have access to markets and channels, and natural storytellers. The world is going to benefit from people with great ideas who – unlike some years ago – will not waste away in anonymity. It’s this evolution that makes it necessary to continuously renew your differences.