Why You Should Care About Behavioral Differentiation
Written by admin on January 24, 2010 – 3:35 am -If we take the most uncomplicated look at business, we see that business leaders can really manage only three things: the products or services they produce; what they charge for those products or services, which is a function of the ability to control costs; and how they behave toward customers. Everything else in business management is a function of these three things: products, price, and behavior.
Products
Businesses devote considerable time and attention to what they produce and how they produce and distribute it. Companies normally strive to differentiate themselves on one or more of these functions of business management: innovation, product/service design, production, distribution, marketing & sales, or the design of after-sales service systems. Although these are reasonable avenues for differentiation, competitors with the resources and will to copy them can easily do so. In the highly competitive and entropic markets most companies face today, product and service differentiation has a short half-life. You can perhaps gain some temporary advantages through innovation, but your competitors will be motivated to eliminate those advantages as quickly as possible.
Price
Price can differentiate you if your products cannot. However, to sustain price as a competitive advantage you must have the internal systems and external controls necessary to remain the low-price leader. Your competitors will envy your cost controls and will try to emulate them, so you may have to beat down costs relentlessly. Wal-Mart has succeeded thus far, but there are signs that their strategy is weakening. To keep costs down, they have had to reduce the number of employees in their stores, and some employees have filed lawsuits contending that Wal-Mart is forcing them to work off the clock.[6] Already, customers are feeling the effects of these issues. It’s harder to get service in a Wal-Mart these days. Employees no longer abide by Sam’s 10-foot rule. If Wal-Mart persists in a low-price strategy as its primary means of differentiation, the company will lose the behavioral advantages it enjoyed in the past.
Behavior
Finally, behavior can be a powerful differentiator if product and price are undifferentiating. In other words, if your products are similar to your competitors’ products and you charge about the same amount, then superior behavior can be a powerful differentiator. However, if a competitor offers a superior product on the market, then the effect of behavior will be diminished. If price is not a barrier, customers will prefer to buy the superior product. If the superior product costs considerably more, then customers will weigh the benefits of the superior product and determine whether the price tradeoff is worth it. However, when product and price are relatively equal in the customer’s mind, then behavior becomes the strongest differentiator.
Today, especially in mature industries and markets, the competing products are very similar and the prices being charged are usually close to the mean. Any imbalances in the function or quality of competing products tend to be eliminated quickly, and differences in price tend to evaporate as competitors learn what their rivals are charging and adjust their pricing accordingly. Consequently, behavior is playing a greater and greater role in how customers make decisions. When they can get essentially the same products or services at essentially the same prices, then they will choose to work with the suppliers whose behavior toward them is most positive.
You should care about behavioral differentiation because it is an aspect of your business that you can manage. You can behave in ways that enable you to build competitive advantage. You should care about behavioral differentiation because if your competitors are outbehaving you, then you are losing business you should not be losing. You should care about it because it is an excellent source of sustainable advantage and because it can help you build greater customer loyalty and market share. In this era of hypercompetitive markets and increasing competition, behavioral differentiation may be the best opportunity you have to win more business.
The chessboard is the world; the pieces are the phenomenon of the universe; the rules of the game are what we call the laws of nature. The player on the other side is hidden from us. We know that his play is always fair, just, and patient. But also we know, to our cost, that he never overlooks a mistake, or makes the smallest allowance for ignorance.
Taken From : Winning Behavior-What the Smartest, Most Successful Companies Do Differently
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