A classic idea in marketing is differentiation. Underpinning this is the thinking that you don’t want to be selling the same thing as someone else in the same place at the same time. If everything is the same, the only thing a firm can compete on is price. When this happens price will drop — in economic theory to the marginal cost of the product. (Marginal cost is the cost of the next product produced). If this happens you won’t make any money, which isn’t great for business. (Years of study helped me see that). Instead, of that unprofitable world one of the luminaries of marketing Theodore Levitt argued, back in 1980, that you can differentiate anything (and mostly do).
No Such Thing As A Commodity
A commodity is something that is interchangeable with other offerings. If your flour is the same as someone else’s flour this is a commodity. Levitt emphasizes, contrary to popular thinking, that there isn’t really anything that is a commodity, or at least good business people shouldn’t allow anything to be. A good business person wants to make their product/service different in some way. To be differentiated.
We are used to thinking of consumer products as differentiated. Coke and Pepsi don’t want you to drink cola, they want you to drink Coke or Pepsi. The whole idea is that they aren’t the same. Whether this be from the actual recipe or the associations in the consumer’s mind it doesn’t really matter — the sodas are perceived as different.
Levitt makes the good point that even business to business (B2B) sales are differentiated. This is obvious when you give it some thought. Some providers are more reliable, some more responsive to contract changes, others supply different sizes, or are in unique locations. There are a host of other factors which competitors are different on.
The usual presumption about so-called undifferentiated commodities is that they are exceedingly price sensitive. A fractionally lower price gets the business. That is seldom true except in the imagined world of economics textbooks. In the actual world of markets, nothing is exempt from other considerations, even when price competition rages.
Levitt (1980)
What Is A Product?
Sometimes seeing why things are different requires a little extra analysis. Levitt argues that, if we look closely, there are a number of ways we can see a product.
There is the generic product. This is what we think of when we hear the product’s name, e.g., steel bar. This is the table stakes. If you can’t make a generic product then you aren’t in that business. Even here differences in the product do exist though. Not all steel bars are the same.
Then there is the expected product. This includes additional critical factors, like delivery times, customer support, as well as terms and conditions.
Next, there is the augmented product. This includes extra features that the customer wasn’t even thinking about when they entered the market. Maybe the selling firm gives some additional advice supporting the product that helps the client run their firm better.
Finally, there is the potential product. This is what the product could become to please the customer. Products evolve over time, and this leads to greater differentiation. Products find their niches.
The Article Is From 1980
Reading this article tells you how long ago 1980 was. Completely out of nowhere, Levitt gives a really strange example of General Foods selling food related to Mozambique and Uganda. Apparently, accompanying the product launch were decorations supplied for when it was served in (work) cafeterias. These included face masks and pith helmets. Let’s just say the weird colonial theme was a bit odd (and probably didn’t set General Foods as much apart in 1980 as one might have hoped).
You Can Differentiate Anything
Levitt’s main point is simple: you can differentiate anything. A business person should address the question, what can you do that makes you a little different? This is pretty good advice in general life too. You don’t want to be seen as “generic”. That said, you probably don’t want to be too different too — don’t bring a pith helmet to work.
For more on avoiding price wars see here.
Read: Theodore Levitt (1980) Marketing Success Through Differentiation — Of Anything, Harvard Business Review, January