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Vertical Differentiation

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You can’t turn a corner these days without bumping into a marketing consultant banging on about the importance of a Unique Selling Proposition (USP) and differentiation.

I’ve written on the topic before – and in my view, for most service businesses it’s actually far more important to focus on creating compelling client value than it is to worry about being unique or differentiating yourself.

However, it’s a topic I keep coming back to and thinking about. For while clients buy based on the value you can bring, they may well initially notice you, and remember you based on your uniqueness or differentiation.

So there’s a challenge here: being different helps you get noticed and get remembered. But if you’re different in a way that doesn’t add value to a client then you won’t get hired.

Now you can try to find ways of being unique and different that are also valuable to clients – but it’s difficult. Competition being what it is, if something is valuable to clients, other people will notice and create and provide that service too. Unless you’re very, very smart or a great reader of early trends – the chances are if you spot something that no other professional in your field is doing – it’s because clients don’t value it.

But there is another way to think about differentiation.

Too often, when we think about differentiating ourselves we think of what I call “horizontal differentiation”. We want to be viewed as doing something different to our competitors. As not occupying the same space in our niche.

But think of some of the most successful professional service firms. Do they really do something different to their competitors?

Is McKinsey the only firm that does Strategy? No.

Do Skadden, Arps, Slate, Meagher & Flom* or other top law firms really do law differently? No.

Do AECOM design different buildings from the rest of the profession? Again, no.

What sets these firms apart is not that they are differentiated horizontally. They don’t really do anything different to the other firms in their niche.

They do things better.

They’re “vertically differentiated”. Clients perceive them to be in the same horizontal space as their competitors – but above them.

That’s the perfect positioning for a professional service firm. Delivering the same services as their competitors (because they’re the services clients need). But delivering them better.

How do you differentiate vertically?

Well to some degree, the perception of superiority comes from delivering great results.

But all professional firms have a truckload of testimonials and happy clients. It’s difficult to differentiate on that.

What allows these firms to stand head and shoulders above their competitors is perceived authority.

Being a consultant, McKinsey is the firm I know best (in my career, I’ve had to come in after McKinsey projects and pick up the pieces on more than one occasion – yet their reputation is immaculate).

I’ve asked McKinsey clients about why they perceive them as being better than their competitors. And I consistently get two answers.

It’s the quality and depth of their thought leadership – and the insights their partners share when they meet with them.

Clearly these two are related. Face to face insights come from personal experience – but also from the thought leadership the firm produces. Thought leadership is usually grounded in the personal experience of the team.

But perceived authority isn’t the exclusive domain of global giants. At a local level, there are consultants, accountants, lawyers, many professionals who are viewed as authorities in their field.

They’re the ones who “really know their stuff”. Who get invited to speak at events, and who are the first to get the call when there’s a tricky or out-of-the-ordinary issue.

They get the best work, and they charge the highest prices.

So next time you’re thinking about differentiation: think about up rather than sideways.

____

* I could have named a different law firm – but blimey, I love that name!

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  • http://juliansummerhayes.wordpress.com Julian Summerhayes

    Ian

    Thanks again for a thought-provoking post.

    I come at this from a practitioner’s point of view both having worked for law firms and having instructed them.

    Without wishing to be too disingenuous to your buying audience, I think you are ascribing to much sophistication. Most purchasers of legal services are not that discerning – certainly in the initial stages – and it may well be the case, when pressed, that a lot of people are not exactly sure why they have chosen one firm over another, save in the case of higher value services like tax where there may only be one show in town.

    There is a great deal of fatigue in the market because quite frankly very few firms dare to be different for fear, most likely, of upsetting the partnership/member dynamic. In other words, there may be a whole raft of changes that could be made to stand out from the crowd but will the firm buy into that? Possibly not.

    From a reputational point of view (your McKinsey point or for lawyers a better example would be Herbert Smith LLP), there has to be sustained and determined focus on differentiation. This usually starts with a clear vision but that has to inculcated amongst everyone – if you want to be the best then you have to walk the walk as they say.

  • http://www.sonjajefferson.co.uk Sonja Jefferson

    Thanks Ian – great article: the best explanation I’ve seen on why thought leadership is so important in the professional services/consultancy sector. As Charles H Green says: “People prefer to buy what they have to buy anyway from those they have come to trust.” Demonstrate your expertise and build the trust that will differentiate your firm and generate sales.
    Sonja

  • http://www.vapartners.ca Jacky

    Hey Ian,

    Very thoughtful entry — My company offers services, and it definitely is hard to differentiate from other consulting service companies out there. Your entry helps companies like mine, understand and reassess our value proposition to our customers. Thanks,

    Jacky

    • http://ianbrodie.com Ian

      Thanks Jacky. Sometimes we get hung up on differentiation. But a simple way to look at it is either do something different (different clients, different services) or do it better.

      Often the latter is more feasible – as “different” is often not valuable to clients.

      Ian

  • http://www.theSalesHabitudes.com Jeff Garrison

    Ian, Love the term “vertical differentiation.” A lot of my clients are in banking and insurance where they are challenged to find ways to stand out. When they focus on becoming known as the “go to” people in one or two narrow areas, they not only get more business in their area of focus, they are also perceived to be able to handle other things better as well.

  • http://ianbrodie.com Ian

    Hi Jeff,

    You bring up a good point. The “halo effect” means that a stand out firm in one niche is often assumed to be good in surrounding niches too. I focus on professional service firms – but often get asked by technical, academic or finance professionals if I can help them too.

    Ian

  • http://abilitymatrix.com Akos

    I am happy that I am not the only “alien” :D. I have built a model based partially on these observations. The key I believe, is that people buy based on perceptions and their (the decision makers) emotional quality (not judging or making valuation of it!).
    Like: people who buy from large companies are most of the time: afraid to fail (in the given context, during an adventure race they may behave totally different). Like in IT networking. They buy Cisco because nobody was fired for choosing Cisco (independent whether the solution works or not and I am not implying that Cisco will not work). Similar with smartphones. Does anybody really think that the people who value the perceived qualities of iPhone will buy anything else? I don’t think so.
    This perception applies to B2B and B2C as well.
    If you want to boost your sales try to find the qualities (the perceived!!!) of your product/service and/or company. Look for companies and decision makers who share the same perceptions/qualities. You will sell quicker and without bargaining on price. And have a lot more fun with less sales.

  • http://www.differentiateyourbusiness.co.uk Paul Simister

    Interesting article Ian and I like the distinction between vertical differentiation and horizontal differentiation.

    In my thinking on differentiation, it’s about creating a preference at the time of buying and then retaining that goodwill through the ongoing relationship by delivering on the promises made.

    This is important because it reminds you that it’s perceptions that matter. This positioning is happening in the minds of your clients.

    I use ABCD as a little reminder.

    Your Advantage can come from being Better, Cheaper or Different.

  • http://www.clockcreative.co.uk Ann Rimmer

    A good discussion to be had here about Unique Selling Points and differentiation. It is almost impossible to have a true USP these days, as you say. Firms need to not worry too much about this and focus on what their brand positioning is – ie where do they want to sit in a market and where do they want to be positioned in the minds of the customers?

    Much of this comes from defining what the brand (business) story is. Why the company was started, what drives it, what the values of the business are and why these matter. In my experience many companies true uniqueness comes from their beliefs, their values – delivered by their people.

    Defining a single-minded position will and does differentiate you. Many service firms try and differentiate by process or ‘product’ offering. They are forgetting that people are emotional creatures and even in B2B, people like to buy from like-minded people and companies. So by sharing your set of values, your vision and what journey you’re on, you will attract the kinds of customers who also share your values and vision and who want to be part of that journey too.

    • http://ianbrodie.com Ian

      Hi Ann – great comment, really good point.

      Sometimes you hear it said that people are only interesting in “what’s in it for me”. But I’ve not found that to be true. You absolutely have to start with the value you bring to your clients, but then your own story and values can really back up why you’re the right person to deliver that value for them.

      Thanks!

      Ian

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