Differentiation pulls you out of commodity trap

By Kay Plantes

Once near it, the work of cutting costs to remain price competitive takes resources away from differentiating your products from the competition. You're pulled even deeper into competing primarily on price.

Commodity competition signposts are everywhere. Store brands, online auctions, requests for proposals, preferred vendor status for multiple vendors, line reviews pitting competitor against competitor, and the proverbial "you get the last look" all point to price-driven competition.

Companies, whether selling services or products to consumers or businesses, can slip into commodity status without even realizing it.

Kraft Foods Inc. has as much risk of price-driven competition as a startup. Even custom producers are not immune. If customers find little meaningful difference between your offering and at least one other competitor, your feet, if not your whole body, are sinking into commodity quicksand.

It happens quietly, almost without notice, while you are trying to do everything right: Improve quality, lower costs, add features and speed operations.

Banking is a great industry for exploring differentiation best practices. After all, the dollar is the world's best- known commodity. The competitive set changes constantly with new entrants, consolidation, branching, credit union expansion, and e-commerce banking. Even Wal-Mart is entering with a discounted interest rate credit card.

Despite this competitive intensity, Oak Bank grew to $120 million in assets in just five years in Fitchburg, a community of only 25,000 people that is home to 12 competitors' banks or branches. Bob Gorsuch, Oak Bank's president, knows differentiation demands focus.

"We know our target customer. Everything in our company, down to the smallest details, must be consistent with our desired differentiation: exceptional service. This even includes picking up discarded coffee cups from the parking lot," he said.

Gorsuch added: "Differentiation also requires a strong leader, coupled with a team that is passionate about what they can do better than competitors. I used to think success was 90 percent people. Now, I know it's 100 percent."

Focus is essential at Johnson Bank. "We focus in on the core Johnson family values," said president Greg Dombrowski. "They lead us to act in the best long-term interests of customers, the community and the bank. You also must decide, what business are you in? Are you renting money? Or, are you in the business of using your people to help clients succeed?"

Differentiation is demanding work. "What was 'wow' today is expected tomorrow," Gorsuch said. "And differentiation was easier at the start; we just made decisions. Now, differentiation requires changing how we do things. Cost effectiveness also remains important."

To escape the quicksand, think like an industry startup. Which target market will you go after? What business will you be in? What unique benefits will you promise customers? What culture, capabilities and structure will ensure your promise is fulfilled and competitors won't catch up?

With answers in hand, remodel your company. Customer loyalty, referrals and higher margins will result.

My friend David Locke, CEO of McFarland State Bank, says it another way: "Thinking outside the box isn't enough. You must perform outside the box."

What are you doing to make your company one of one rather than one of many?

madison.com ©2009 Capital Newspapers. All rights reserved.