Introduction to Market differentiation
By Tom Dougherty
Brand marketing is in a crisis, and the lack of movement within many markets – from retail to B2B to restaurant chains, and many others – proves it. There seems to be little to no market differentiation.
Markets are stagnating with few target audiences switching their preferences because few brands have a compelling enough value proposition to create a new preference. Some blame maturing markets and complain that all brand-marketing stories have been told.
The reason for dead markets is that brands have gotten lazy with the value proposition and have, in the end, defined their brands by what it means to even play in the category – what we call “table stakes.”
In this study, we will look at a handful of industries and the results are shocking. Most, if not all, of the players in each market all deliver the same value proposition, usually focused on price, technology and service.
From the perspective of the target audience, those propositions are meaningless and, therefore, audiences tune them out. Those propositions are simply definitions of the market itself. You must have competitive prices, up-to-date technology and excellent service to even exist in those markets.
Therefore, they do not create preference.
Because of that, target audiences are left choosing brands based, not on any value proposition, but on “it’s the way I’ve always done it.” There is no preference.
What is most scandalous is that this is true with just about every category. We have looked at other industries – such as packaged goods, banking, airlines and beverages – and the situation is almost always the same, possibly even worse. Even if a brand markets a value proposition that’s different than the competition – such as Coors and “cold beer” – it is something that target audiences already believe its current brand of choice offers. Audiences only switch for values it believes it does not already have. (For Coors to work, audiences would have to believe its current preferred choice is “warm.)
Stealing market share is an art form practiced by the very few (Apple, Nike, Harley-Davidson), which means great opportunity exists for those who realize their most valuable value proposition is in the emotional self-reflection of the target audience. The most effective value proposition, as we shall see, is in the customer, not in the product or company itself.
Therefore, consider these examples as representatives of just about any category, including your own.
The marketing world has been abuzz over Domino’s Pizza’s new attempt to be relevant (and overcome an increasingly bad value perception) by hitting the issue head on: We have often had a bad pizza, but we’re going to change.
While the honesty is a fresh approach and has some potential, there are problems. The most obvious hurdle is that Domino’s must now back up the promise of better taste and ingredients or it will look laughable. (Its recent campaign around purchasers sending in pictures to confirm the improvement is an attempt at that.)
But Domino’s has a larger problem: No one switches pizza providers based on the idea of taste. For Domino’s essential message – “Our pizza now tastes good” – to work, audiences would have to currently believe their current pizza of choice tastes terrible. (It’d be the equivalent of someone saying, “This pizza I’ve been eating for years sucks. Let’s order another.”) No one believes that or they wouldn’t have preferred it in the first place.
The mind-boggling thing is that Domino’s “taste” brand isn’t so different from what the rest of the category is doing: All base their marketing on the appearance of taste (and price). A direct competitor, for example, is Papa John’s, whose brand theme line is “Better ingredients. Better Pizza.”
But the “taste” ware isn’t even what is driving the pizza category at all. It’s all about price and the top brands have gotten themselves in a rut they can’t get out of. The winner is going to be the one with the deepest pockets to price out the market, meaning margins and profits are going to shrink.
Basically, the conundrum of price has painted the pizza brands in a corner because they have taught audiences to choose on price and couponing. None of the major pizza chains have been able to create a brand consumers can prefer. So it becomes a game with no end because when it comes to chains, audiences already believe they are the “good enough” option (which is why “better taste” falls on deaf ears) and cheap.
This is the most perfect example of why the value propositions of brands are failing. Having cheap pizza is a table stake among the large providers, and consumers don’t see a marketable difference between the brands, especially when the pizzas have the same exact price.
Because consumers see ads in a snapshot – that is, they only take one message away from it – the takeaway is that both sell a $10 pizza. So what audiences do is choose based on seemingly silly things: Convenience (who can get it to my door quicker), coupons or what the kids want. The basic belief shared by audiences is the major chains provide cheap pizza because the chains taught them that.
Considering all that, it’s no wonder that the majority of the market share, more than 51%, is made up of independents. That just means all those marketing dollars spent by the four leaders are largely wasted because, despite how many times we see their advertising on TV, most pizza eaters don’t prefer them.
Those independent brands have great opportunity because they aren’t trapped in the same padded room of cheap price and “good enough” taste. Smaller chains like Mellow Mushroom are stealing share because it can provide a brand, and an experience, that isn’t shackled by the target audience’s beliefs.
Therefore, the first step in stealing market share lies there, as exemplified by a billboard currently showing in Denver.
This, of course, positions Anthony’s directly against Domino’s, so there’s a strategic bent, and the attitude is as well. But it also demonstrates that this pizza retailer is not trapped by the value of proposition of price – if Papa John’s pizza is so much better, why can’t it charge a higher price? – and can claim a better pizza because it’s not lumped in with the “good enough” brands.
For the major retailers, this is a problem many of the largest soda brands are trying to emerge from. While Pepsi and Coke used to have extreme loyalty, it has softened over the years because the industry taught consumers to buy on price. Therefore, the choice has depended on “what’s on sale?”
This is true for the entire fast-food (or Quick Service Restaurant) industry. In nearly every QSR brand we examined, price or taste was the value proposition.
Make no mistake. A QSR sandwich shop, such as Quiznos, is competing with the Pizza Huts, Taco Bells and McDonald’s of the world, as well as any other food choice in the market (including cooking at home). To become preferred, it has to be more than price. It has to be the self-reflection of who consumers are when they choose you.
As it stands now, the self-reflection of the target audience in the QSR market is that they are cheap and will eat anything. The value propositions are the same: Price and taste.
The value propositions have failed. (Read more on the QSR Market here)
There are times when the value-proposition-as-table-stake isn’t just about a product benefit or the definitions of what it means to be in the category. Sometimes, the meanings of the brands themselves become the table stakes.
Take three of the most powerful B2B brands in the world, in which they have overlapping markets and, as it turns out, highly expensive marketing: IBM, Cisco and Alcatel-Lucent.
Take a look at their brand positions:
IBM – “Smarter Planet”
Cisco – “Human Network”
You could jumble the words in those theme lines up and each would emerge with the same brand they had before. In a nutshell, all are talking about connectivity and, in the case of IBM and Cisco, they are attempting to make it more human. (But not going all the way like, let’s say, Apple does.) There are spots about meeting your doctor who across the world, an elementary classroom communicating with peers in China, collecting data from an infant’s body.
At one point, this may have been a meaningful brand position as technology seemed to be cold, hard to understand and dangerous. But because everybody now claims it and the world is much more accepting of the benefits of technology, a human connection is a value proposition that means nothing. Despite the high production values, it becomes as much of an ignored message as insurance companies saying, “We’ll protect you.”
At least Cisco and IBM are trying. Most of its competition, such as Juniper Networks and Lucent, simply focus on technology, which is as much of a table stake in this category as taste and price among pizza chains.
When it’s simply about the technology or the things most B2B brands sell – product benefits, price, technology, etc. – you are simply selling category benefits. When that happens, only preference for the category emerges.
B2B markets are also dependent on sales teams, which is why many believe brand marketing is not important. They believe B2B preference is the result of a rational argument.
However, it is actually more important than in consumer markets because, otherwise, B2B companies are left to win based on how well they respond to RFPs and the personal acumen of the salesperson. In those cases, companies then have to recreate the “brand” on a daily basis, with next to no equity built up over time.
It has been our experience that those on the ground for B2B clients are hungry for a brand because it gives the salesperson a story to tell without continually fighting over whether your socket will fit into theirs better than others. It’s an exhausting, losing game that ends up making B2B companies flounder.
Meanwhile, a different and better value proposition that’s related to the brand can create market leadership and change the category itself, positioning the brand as the expert. That makes the sales arguments more believable and the brand itself becomes what IBM used to be, the default choice and the result of the sales cliché, “You won’t be blamed if you choose IBM.”
Currently, GoToMeeting and its sub-brands, such as GoToWebinar, hold 90% market share of the remote access market. Citrix customers now include all of the Fortune 100 companies and 99% of the Fortune Global 500.
It did this by suggesting a brand that reflected the brand face of the professional businessperson: On the go, ready and quick with information, no time for bulky technology, cutting down on expenses, just looking for “easy.” Its name – GoToMeeting – suggests that, as does its tagline of “Work with anyone, anywhere.”
The value proposition is “success,” because you, as the businessperson, have no limits holding you back. The value proposition is not “human connection,” but something more personal and meaningful.
That’s a value proposition that works (Read more on the B2B Segment here).
We mentioned earlier that the auto industry is among the worst when it comes to marketing the same tone and attitude, aspects that become part of the value proposition as well as price and technology because they are intended to make an emotional connection. A tone and attitude that is part of the self-reflection is the most meaningful value proposition.
The auto industry, however, has become one of the most insular industries in the U.S. and represents a trap many companies and brands have fallen into. They believe that to market their industry you have to be experts in that industry rather than experts in marketing or branding. They believe that marketing automobiles is different than anything else. (An automaker executive actually said those exact words to us.)
This is the result. Spots that are expensive, extremely visual with dramatic music and voiceovers by professional actors (Liev Schreiber for Infinity, Jon Hamm for Mercedes). Yet, if you didn’t see the logo at the end, you wouldn’t be able to tell the difference.
Even with the same tones, they also hold the same value propositions. They are about technology – one in intuitively understanding the driver, the other in being environmentally aware – but it’s still about technology.
Combined with the same tone, it enters the realm of cliché. You just need a masculine, professional voiceover while showing a car driving down the road and, like magic, you have the result of “auto marketing is different.”
Technology has become a table stake thoroughly over-used in the auto industry, as though that says something about the consumer. (It just says something about the car.) We’ve already seen two that deliver that message, but blend this one from Acura and you see the quagmire the auto industry is in.
One of the problems with using technology as a value proposition is that few of the auto brands embed it into the brand itself. That is, any value proposition has to be related to the brand itself. Otherwise, it’s just another marketing message that does not move the needle.
The tone and attitude so commonly used by the auto industry came from the idea that the auto is part of your lifestyle. We do buy cars that are a reflection of who we want to be – which is why middle-age men buy so many sports cars, for example, or moms buy vans and SUVs – but the “lifestyle” angle has become a value proposition cliché, even when the tone is slightly different, because it is not tied into the brand.
The value propositions marketed in the auto industry have become a blend of the same tone, attitude and messaging (technology, lifestyle) that it’s no wonder that, often, the best – and smartest – choice from the point of view of the consumer is not to buy at all. Without a more meaningful value proposition, that’s the brand face audiences are wearing.
Value propositions fail again. Read more on the auto industry here
There are many industries that have found themselves lost in the value proposition dilemma. So many are lost in it that it’s no surprise the retail industry is down. You could even place the retail in among the worst, right down there with banks.
Remember that in order for a value proposition to work, it must answer a need in the market. If those who you are trying to persuade already have what you are marketing, yours is among the messages that are being filtered out.
In the case of retailers, they are obsessed with marketing price as the value proposition. So much so that audiences believe everybody has competitive prices and, as often as any, just pick the retailer closest to their house (or work), and even which side of the street the retailer is located. They already believe they have low prices because the entire retail industry has told them so.
We took a look at the top 10 retailers in the U.S. and you can see why the value propositions have led to no preference in the market. The market leader is Wal-Mart, which is based on its theme line of “Save Money. Live Better.” If anyone owns “price,” it’s Wal-Mart.
Yet, Target, the No. 3 retailer in the US (behind Wal-Mart and Kroger) markets “Expect More. Pay Less.”
In terms of messaging, there’s no difference. They all basically say, “We have what you need and at a low price is the same message over and over.”
Let’s consider the rest of the top retailers. The No. 4 retailer is Walgreens, which has recently attempted to build its brand around nostalgia for the recent past. Its theme line says, “There’s a better way.” But what is that way?
The question Walgreens needs to ask itself is if a yearning for a past, perfect world is what consumers are looking for – especially from Walgreens. And, even if it is, is it related to the Walgreens brand?
No. 5. Home Depot. “More saving. More doing.”
No. 7 is CVS, which is not only about price, but its “mom” image isn’t that far away from what Walgreens is doing. Which is why preference between these two fierce competitors is based on location.
No. 8 is Lowe’s. Its “Let’s Build Something Together” is right there with Home Depot’s “More doing” and both value propositions are about service.
No. 9. Sears. “Life. Well spent.”
No. 10. Best Buy. “Buyer be happy.”
We could go on. Having competitive prices with good service is the definition of a retailer. If you don’t have them, you are not a retailer. Again, from the point of view of the consumer, the value propositions are all the same and are definitions of what it means to even be in the market.
Even when there are value propositions tied into the brand face of the consumer, they are either not related to the brand (which is as much about operations as marketing), not important or retreads.
Retailers, as much as anyone, need to think harder about what its value proposition is.
And the answer to that is brand. (We have an a deep look at the retail category here)
If you’ve read our other studies, blogs and/or articles, you know that we have often talked about the few brands that work as well as demonstrating how we also conduct brand.
We have studied other markets – consumer goods, airlines and beer – and often the same conclusions are reached. The lack of meaningful value propositions is the single biggest reason why so many companies and brands are at a standstill, and market share is so rarely stolen.
Apple is one brand that gets it right. Even when it is marketing a new product, like the iPad, it says exactly who the customer is.
The point is that whether you are a restaurant chain, a B2B business, an automaker, a retailer or anything else, the value proposition is the brand face of the target audience you want to reach.
Otherwise, you are left with marketing price, convenience and technology, just like everybody else around you. The result is that you become a gerbil running in place within a spinning wheel. Don’t let that become your value proposition.