Does an entrepreneur need a Differentiation Strategy for his sustained business success? This is a question that I will look at from two crucial perspectives, IR4.0 where the digitization of business has taken an unprecedented pace while coming IR5.0 where personalization will be the order of the day, courtesy of enabling technologies; digitalization.
The rules of the game have been changed and will continue to be changed and affect everyone. What is clear, digitalization will up the ante of personalization as a UPS, the crux of IR5.0. This will inevitably be the game to be played by start-ups to outwit established players.
From the trends of the last decade, startups with the agility and ability of digital technologies particularly Artificial Intelligence (AI), Big Data (BD), and Machine Learning (ML) will continue to change the rules for the game as well as change the game. This is how they are going to compete, creating the rule to change the game that will be advantageous to them.
The existing players will either have to catch up or reset the rules by disturbing their marketplace. However, it is easier said than done when you have to battle and discard past success to change your game. This is what happened to Kodak when they are unwilling to challenge their dominant market position in the film industry when they invented the digital camera in 1975. Ultimately Kodak paid a heavy price for ignoring the developing trend.
Even playing catching up, the demand for a Differentiation Strategy is needed and desired as seen in the smartphone industry. After Apple introduced its iPhone, other cellular phone industry players are forced to change or be changed, and a few dominant players like Nokia and LG were changed by the disrupted market.
With Apple’s iPhone sweeping and disrupting the industry, other players have no choice but to adapt however a one-for-one identical adaptation will not work, Apple’s competitors need a copycat strategy to adapt differently. As late Bruce Lee said take what is good and discard what wouldn’t work to be successful, the start of Differentiation.
This situation also sees players who fall by the wayside and left like Nokia and LG while Samsung took the challenge and innovated with their Differentiation Strategy while new players, mainly from China like Oppo and Huawei arrived on the scene to compete based on their differentiated position.
Although this scenario affects the big boys, it certainly does apply to entrepreneurs who are constantly upped end by startups in their own game. The market is no longer in status quo for long, changes and disruptions are occurring by the month, and this applies to all industries, fueled by the exponential potential of digital technologies. One disruption that will be closely watched by the world is ChatGPT.
A strategic thinking player creates his market by searching for the demand void while a tactical player joins the crowd and tries to stand out with a Differentiation Strategy. The former is the Blue Ocean Strategy (BOS) while the latter is the Red Ocean Strategy (ROS). Neither is easy, both are fraught with their own set of challenges. Yet both have to have their Differentiation Strategy to position themselves.
I remembered the boom of the bike-share business in the suburbs of Beijing in 2017. This novel idea caught on and was quickly followed by an explosion of copycat competitors, appearing like bamboo shoots after the rain, each has to outdo the other with tweaked differentiation. I can only conclude that competition necessitated Differentiation.
Understanding that there is no one size fits all, the key has to be; Differentiation, be it the BOS or ROS. This is even more prevalent when competitions heat up much more frequently these days as though we are seeing a revolution of business innovations, again thanks to the enabling digital technologies. All that is needed nowadays to start a business is a dream and a computer connected to the internet. The world can be your market.
As we witnessed in the insurance industry, the products are pretty similar across the board with catching up competitors copying and improving products with Differentiation while each insurance agent and financial planner will offer Differentiated USP to win their potential customers. Here we see two tiers of differentiation, one at the product level by the business and the other at the service level by solopreneurs.
Similarly, Penang, the Pearl of the Orient is famous for Cha Kuay Tiaw, a fried noodle dish that one can find at almost every corner of the island yet the more popular ones are those that differentiated themselves from others like using duck instead of a chicken egg, huge prawns and crab meats.
Differentiation is used effectively to compete in the ride-sharing industry amongst solopreneurs. As Michael Porter pointed out, the worst position to be in for any business is, stuck in the middle of neither here nor there.
Differentiation is needed and necessary as no business can satisfy everyone, there will always be trade-offs and the trade-off creates the need for differentiation.
In a Vulcan post recently, it reported the folding up of entrepreneurs including start-ups. This just showed that business is ruthless even for entrepreneurs and start-ups. Businesses are not just battling existing competitors but also up-and-coming competitors who join the fray with a fresh-from-the-oven Differentiation Strategy after understanding and learning from the marketplace competition.
This ruthless competition including newcomers certainly reminded me of Michael Porter’s 5 Market Forces Competitive Analysis, and reading the Vulcan Post’s report; six of the Malaysian start-ups that shut down in 2022, point to the dynamism and systemic effects from the interplay of the 5 market forces.
Every industry is subjected to the dynamism of these 5 market forces:
- Competitors. Interestingly the hotel industry has never in their wildest dream to be competing with a 2 men setup to challenge those who don’t even own and operate brick-and-mortar assets, yet they make their presence felt by competing with hoteliers across the globe. Airbnb is an added option for the customers, with offers of choice locations as well as off-beat locations to cater to the budget, another aspect of differentiation.
- The threat of new entrants. This is always an ever-present threat where startups with a dream and a connected computer can start a business to challenge the established. As we see, content creators are now challenging the book industry by churning out reading materials that give customers a choice.
- Bargaining power of suppliers. This is particularly prevalent when a business relies on a third party for its products and offers, which was one of the main factors in the fold-up of one of the six start-ups mentioned in the Vulcan Post’s report. Adding to the misery was there was no differentiation in the products except for the cheaper cost, which could not be sustained over time.
- Bargaining power of buyers. With enabling digital technologies, the cost of production is optimized and passed on to the consumers on top of the broadening choice, thus giving buyers more power to make the buying decisions. This optimization of cost does include differentiation and/or personalization.
- Threats of substitutes. The emergence of digital technologies means the broadening and widening of options. Traditional news media that relies on newspapers to disseminate news is challenged by both virtual news as well as social media publishing. The traditionalists have no choice but to migrate to e-version. Even Three Hundredth opted to be an e-publication.
This myriad of factors makes Differentiation and/or Personalization a necessity to start fresh and attractive to customers. It is a game of endless up the ante.
With the proliferation of the use of AI, BD, and ML, Differentiation is part Personalization Strategy using AI, and BD to capture the unique preference of customer expectations and tailor-made solutions and offerings.
While there is a subtle difference between Differentiation and Personalization. Differentiation generally is a bulk tailored with the vendor assessing what the general market trend is and trying to tweak his offering to be different in his value proposition. Meanwhile, Personalization refers to the involvement of customers to co-create the solutions that would mean fit for purpose approach.
In Australia, home-loan brokers including solopreneurs personalized their offering for each of their customers based on the preferences and factors to work out a solution. No one solution fits two customers as each has a different earning capacity, financial commitment as well as repayment preference. All these factors are parameters for the Personalization of the offering. This is how the Differentiation strategy works, able to tweak the necessaries after capturing the needs and wants of the customer. The base is Differentiation and working upward towards Personalization.
This dual reworking will be the standard of sustainability in business due to the various converging factors such as the explosion of availability of knowledge cum more knowledgeable customers, the exponential agility power of digital technologies including the power of informed insights from AI and BD, and lastly, the playing field has been flattened where giants no longer have absolute advantages. David winning over Goliath is going to be a common story when David knows how to Differentiate and Personalize their business to capture their business opportunities.
Even with differentiation, personalization or both, it may not guarantee success as it is a constantly evolving game where established players will be challenged by start-ups, who are ready to battle the existing players. It is only with a constant What and How to Differentiate with the aid of the versatility of digital technologies that will give a business the edge to compete. Even the rules of the game are completely different now, and they are tougher than ever.
