Achieve a Strategic Balance When Differentiating

A recent brand positioning facilitation at a client by ALCG colleague Angelo Lyall on points of parity and differentiation reminded me of a key strategy concept: strategic balance (Deephouse, 1999).  This concept is particularly important for firms wishing to pursue a differentiation, or value(benefit) advantage, strategy.

In his facilitation, Angelo pointed out that while differentiation in positioning a brand is good and usually beneficial, it is also important not to overlook points of parity where you can least match competitive offerings. This is important because failure to identify and communicate points of parity can lead consumers to prefer or choose  a rival brand over yours.

This thinking can be extended from brand positioning to the more general arena of competitive strategy, particularly where a differentiation strategy is being pursued. Firms pursuing a differentiation strategy are staking out a high-quality position in the value/cost space. Doing this successfully requires balancing two opposing forces.

The first force arises out of the need for a firm to be different from rivals. This, after all, is the essence of differentiation. Firms which successfully differentiate themselves from rivals enjoy reduced rivalry, softer price competition, reduced threat from competitive entry, and increased performance.

Opposing this first force is the need for a firm to retain some similarity to rivals. If a firm creates extreme differentiation, with little or no similarity to rivals, there is the risk that it can be perceived as a misfit firm within its industry. This perception can erode consumer confidence in the firm’s offerings and also cause the firm to experience difficulty in acquiring needed resources such as labour and capital. In short, extreme differentiation in which there are few points of parity with rivals may create the perception of an illegitimate market player.

In addition, similarities (or points of parity) between rivals provide the context where valuable differences become apparent. Put another way, if nothing is the same, it’s hard for consumers to tell what is really distinctive and different about a firm’s product and service offerings.

The lesson: avoid extreme differentiation where all points of parity with competitors are sacrificed. Points of parity highlight where a firm at least matches the competition and they accentuate differentiation all the more as distinct differences are highlighted.