Differentiation in marketing or how to increase price 3,125%
Differentiation in marketing is how you set yourself apart in the market. You differentiate so that your customers see you as different from the competition: you may sell the same thing but you are different. That differentiation helps you set your price and gives you power in the market.
The key to differentiation is to tell a better story. The story creates context and clarifies for people why whatever you are selling matters to them. Your customers will perceive identical products with different stories, differently. The story, in fact, is more important in differentiation, than the product itself.
Differentiation is key to setting your price
Economists will tell you that price depends on the balance of supply and demand. If there is more demand for a product than there is supply, the price increases.
The increase is the impact of more people bidding on fewer items. For example, if you are selling two widgets, and three people want them, you raise the price until one of them is no longer interested.
An increase in supply drives the price down. If you have four widgets and three interested people, you practically have to give them away if you want to sell all four.
So that is the theory of pricing strategy.
The theory may sound, obvious, esoteric, or both. You may even wonder what this has to do with pricing whatever you are selling.
Here is the thing: it has everything to do with pricing whatever you are selling. If you want to set your price and sell whatever you do for more than what it costs you, you must find a way to differentiate so that there is a lot of demand and limited supply.
Differentiation is key.
Consider wine glasses
Ikea prices their Hederlig wine glass, their red wine style, at $1.99.
These glasses are very available, very accessible, and easy to find. Their wine glass is designed to serve wine without spilling it. You buy them in packs of six. They are attractive, with a faint Scandinavian feeling to them, but nothing special.
You can buy these glasses along with all of the other stuff you may ever need for your home. There is abundant supply, reasonable demand, and the price is fair.
About fifty minutes up the road from the Innsbruck Ikea, in a town called Kufstein, there is a wine glass shop that also sells wine glasses around the world.
They coexist within a flood of cheap wine glasses, selling to a world in which wine glasses are not at all in undersupply.
They don’t sell every household item you may ever need, so they don’t sell much to the just-bought-a-bookcase-might-need-a-wine-glass crowd.
Instead, they sell every wineglass you may ever need - a different shape for every varietal.
The company is Riedel, and they make premium wine glasses that eke every last bit of experience from a glass of wine.
So Riedel prices these glasses accordingly, they charge $62.50, or 3,125% more than the Ikea glasses.
There is only one catch: in blind taste tests, the wine glasses make no difference whatsoever to the taste of the wine.
They are completely interchangeable, utterly non-differentiated.
So, this would appear to break the rule of supply and demand.
Riedel is adding supply to a market already well served by Ikea. The only physical difference is that they charge 3,125% more.
Does this not fly in the face of decades of economic thought?
The answer is no. The glasses are the same, but the reason Ikea wine glasses sell for $1.99, and Riedel glasses sell for $62.50, is that both sell a differentiated product and neither Riedel nor Ikea sells wine glasses.
What Riedel and Ikea are really selling
Both Ikea and Riedel (and everybody else in the world) sell transformation. The wine glass is a product, a delivery mechanism, but people are paying for transformation.
Both companies tell a story of transformation, and this story is very different, very unique, and determines the price that each can charge.
Ikea tells the story of having lots of things and creating a beautiful home with a European flair that is very affordable. You can get everything at Ikea to outfit every room of your home. One trip and you can neatly fill all your space.
This includes furniture but also soap dispensers, plates, cutlery, hot pads, and even wine glasses.
They sell accessibility in bulk.
Ikea offers a complete home at a reasonable price. There is only so much you can charge for that.
The simple reason why Riedel glasses sell for so much more money
Riedel, on the other hand, is not about selling to everybody. The story the Riedel company sells is one of exclusivity, refined tastes, and elegance.
The transformation that Riedel offers is from not knowing anything about wine to being a wine connoisseur. Through buying Riedel glasses and serving wine in Riedel glasses, you can access a world of wine drinking and appreciation that you don’t get with Ikea.
Riedel will explain how the glass improves the quality of the wine tasting experience and helps you enjoy your wine as the wine should be enjoyed.
“If wine could choose a glass, it would be a Riedel,” they say.
Plenty of experts will tell you how much better wine tastes when you use the perfectly shaped Riedel glasses. And, those “in the know” will see that you know something about wine when you use the right glasses.
The fact that in blind taste tests, there is no difference between wine served in an Ikea wineglass and wine served in a Riedel wineglass is irrelevant.
As Seth Godin put it, “The reason the wine tastes better is that people believe it should.”
So Riedel is selling a story of scarcity - they set themselves apart with a story of quality, perception and ultimately the romance of wine.
Riedel glasses are scarce and offer a rarified wine experience.
Ikea glasses are everyday glasses that everybody has.
That is why Riedel glasses are more expensive.
You are selling a story, the story creates scarcity and the story sets the price
If everybody sold wine glasses, ultimately they would become interchangeable, they’d all be the same thing, and they would trade at the lowest price.
Wine glasses sold this way would be sold based on being able to hold the wine without spilling it and delivering it to the mouth.
The price would probably be 50 cents.
This matters to you because most professionals and businesses sell their market equivalent of a wine glass rather than the story of transformation.
This holds them back.
Those who sell this way list all of the benefits, attributes, and features of their product.
They tell everybody about their product, how nice and shiny it is, the buttons it has, how well it holds the wine without spilling it,
But nobody cares. So you end up having to work hard to get the prospect to buy. Also, you have no confidence to charge a higher price.
Instead tell a story and sell something different. Sell a differentiated story and a differentiated product.
There are coaches, then there is Tony Robbins
The story is not just relevant for wine glasses; it is everywhere. The story matters for products, services, and whatever else you may be selling.
Tony Robbins is a life coach, or life strategist as he puts it. Life coaches and strategists are a dime a dozen. Robbins charges a fortune for his services; I read somewhere that he charges $1 million a year for his top tier.
Why? Because people are paying for access to his experience, reputation, and recognized ability to deliver. He isn’t just a coach; he is Tony Robbins. There is only one, and if you want access, you will pay for it.
Robbins tells a great, compelling story.
He also delivers. Which is another important part of the story: you must be able to deliver the promise.
Seth Godin talks about the importance of stories in All Marketers Tell Stories and as much as I agree with just about everything he says in it (and it is from his book that I got the Riedel story).
Except that, he calls the story a lie. The reality is that the stories must be true to be effective marketing over time - you can always fool people once or twice, but if your story is a lie, they won’t come back.
It isn’t a lie that Tony Robbins delivers a better product. It is true for the person who has the problem that Tony Robbins solves.
It isn’t a lie that Riedel glasses improve the taste of wine; they do. They may not make wine taste better in blind taste tests but I don’t drink my wine blindfolded.
The story, the glass the experience is in fact better because of the glasses.
Otherwise, I wouldn’t love my Riedel glasses so much. (Or aspire to be coached by Tony Robbins.)
So to raise your prices 3,135% by telling a better story.
If the story concept sounds duplicitous, it isn’t. It is okay that we buy into the romance of wine or the story of being a connoisseur. Ultimately this enhances our lives, and it is this transformation that we all buy.
No matter what you do, your service or product does more than function as a product or service:
Accountants don’t just do the numbers they help you take control of your business,
dentists don’t drill your teeth; they give you a smile,
craft beer doesn’t just get you drunk it connects you to a culture of craftsmanship
Whatever you do, you provide a transformation, and that transformation is more scarce than accounting services, dentists, or beer.
It is also more exciting and interesting to the customer.
Selling the story of transformation differentiates your offering and gives you the power to shift the balance of supply and demand in your favor.
Since the transformation you offer and the way you provide it is unique, it isn’t a commodity to be lumped in with everything else and sold based on its attributes. More demand for your limited supply means that you can increase your price.
Build a story, create scarcity, and define what you do in terms of the transformation you offer. This will help you break out of the commodity trap, deliver better and charge a more reasonable price.
How do you differentiate marketing?
The key to differentiation is to appeal to a specific, narrow, segment of the market. In other words you want to appeal to a specific niche. The way you do this is by identifying that niche and creating a story that is different than everyone else. Remember that you don’t want to talk as much about your product or what you do. You want to focus on your customer and what they get. Show them the value and demonstrate why you are uniquely able to provide that value. Make it about them. You will be differentiated.
Why is differentiated marketing important?
Differentiated marketing is vital to profitability. If you are selling the same product as everyone else then supply will be higher and this will drive down the price. Differentiation is the only way to break out of this and offer a product that is completely separate where you are the only supplier. Once you build your following around that product you will be able to raise your prices, make more money and ultimately be more successful with what you are trying to do.
Why has product differentiation become so important in sales and marketing?
One very important reason why differentiation is becoming more important is that more and more people have access to selling the same product. There was a time when there was one kind of toothpaste or one style of shoe - just having the product to sell was all that matters. Now we have choices. The more choices we have the more each one needs to be differentiated, separated and turned into its own niche.