Dear Industry: Dare to Differentiate

Ben Bajarin / September 23rd, 2011

Why should I (or anyone) buy your product or service over another? This is one of the most important questions any company in business should be asking. Right now it seems in the consumer and personal electronics industry too many executives answer that question with “price”. Their thinking is “My product costs less therefore it is the more desirable option.”

The only problem with that answer is that it is fundamentally flawed, particularly when a product or service competes in a market that is mature or post-mature. In mature product markets there is significantly more happening during the purchasing process.

The reason price is what most companies in the personal technology industry is because price was what drove the explosive growth over the past 10-15 years. However now that the market for PC’s is mature and smart phones and tablets will mature very quickly. Strategically thinking through product differentiation will be central to the innovation and product planning process.

Understanding Mature Markets
In a mature market differentiation is everything. This is true for the simple reason that in a mature market most consumers know what they want in a product and shop accordingly. As a product or category goes through the maturation cycle consumers first purchase helps to familiarize them with the product for the first time. This is happening now with smart phones and tablets.

Consumers are experiencing their first or second smart phone and their first tablet. This will continue to be case for the next few years as these categories mature. After owning one or two product generations consumers begin to become more familiar with their desires for a product.

However the PC market is fundamentally different. Most consumers have owned at least one if not several desktops and or notebooks. Because of this they now know for the most part what they want and what they don’t want with a personal computer and they are shopping accordingly.

It is with this consumer mentality that differentiation is crucial.

This idea first hit me five years ago when I was doing some specific analysis around differentiation. I walked into Best Buy to try to get the consumer experience for shopping for a notebook.

What I saw was a line of notebooks spread across the computer aisle all looking roughly the same. They all ran the same OS with no clear value proposition in favor of one over another except for price.

So as I watched consumers come in and shop for notebooks what was the first thing they went up and looked at? The price tag. Price is important but it should not be the only value proposition of a consumer product.

In a mature product market consumers move to shopping from price to preference.

PC’s Are Now Like Cars
I use this analogy quite a bit but the automotive industry I feel is the best example of a post mature product market to study.

There are more examples of technology and automotive industry similarities than I have time to get into but we can look at a few.

When consumers shop for cars they already know what they want based on their needs or preferences. Do they prefer a truck, do they prefer a minivan, do they prefer an economy car, do they want to save gas, or do they want to drive in luxury. These are all pre-defined buying characteristics that consumers are self-aware of.

The automotive industry has segmented and each segment has its own unique needs, wants and desires.

Similarly with regards to the technology industry consumers are shopping for PCs and other devices based on preference. For some price is their preference, like an economy car, however that is not the only differentiation opportunity.

Hardware Differentiation is Not Enough
All of that context on mature markets and the automotive industry to say that hardware differentiation is simply not enough.

Apple differentiates itself in three vectors all working together. These vectors are hardware, software and services. Apple services differentiate their software which differentiates their hardware. Because Apple is vertically integrated and own’s every level of their differentiation they stand apart from the pack.

It is for this reason that some level of vertical-ization is necessary in order to compete going forward. It is also for this reason enabling technologies or middleware companies need to figure out how to help their hardware partners differentiate their products.

This is never more glaringly true of a problem than with Windows and with Android. Android and Windows are middle ware software providers that solve the software problem for hardware manufactures but add the problem of differentiation.

Devices running the same software can only be different through hardware. This is why in my scenario above when I was looking for notebook differentiation I saw all the notebooks at Best Buy running Windows. None of them were really any different because of it.

Differentiation is no easy task in todays landscape. None the less the answer is innovation. Right now I see companies innovating looking through the rear view mirror rather than innovating with a forward-looking philosophy.

Dare to differentiate, dare to innovate and look to the future not to the past.

Read the First in the Dear Industry Series:
Dear Industry: The Series Introduction

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio
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  • Miles

    I really enjoyed reading your post. I am an MBA student myself am writing my final thesis exactly on the same topic (differentiation in a no hardware differentiation era). Got some good ideas from your post. Cheers
    Miles

  • Recision

    I think the only place left to differentiate is in the user interface.
    The software(OS) and hardware designers need to get out of the way.
    Let the customer and the third party software designers come up with a customizable U/I.
    Provide them with a neutral base which will morph to whatever configuration the customer want, and let them be able to export that template if they want to.
    To a certain extant that IS currently possible, but almost no-body knows that, or what to do to achieve it.
    Make it as simple as click and drag.
    If I want the “close/minimise/expand” icons on the left or right, or the bottom, then let me do it. Click and drag…
    If I want the scroll bar to reverse direction on the mouse scroll wheel, then why can’t I right click the scroll bar to open that as a menu option.
    Why cant I put all of my options on a memory stick and take that to another computer, and have that one interface exactly like my one?
    If I don’t want to sync through iTunes why the hell should I have to…
    And for that matter, iTunes is butt ugly, why can’t customize what I see when I visit there, alter the layout and options to a manner that suits me.

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