The differential in practice

I recently attended a lecture in which one of the audience members asked how he could compete against a field of competitors who are all similar? This is a highly relevant question for Namibia where enterprise formation has been and is still mostly driven by what has worked before for others, not by what is possible.

The problem with the copycat enterprise is that it is executed without regard for differentials, effectively creating a supply glut in which the combined market capacity to absorb the product or service is spread across a growing number of undistinguished players. This very effectively dilutes the potential for profitability and growth.

Do you doubt me? Look at the phenomenon of the kasie bars in the northern suburbs.

The answer is to differentiate. Broadly put, there are four questions that the entrepreneur needs to answer, the first of which is against who? That establishes the consideration set. Once this is answered, the next three questions are for who, when and why? The latter three questions need to be comprehensively answered for a range of competitors.

The answers must be examined firstly for gaps and secondly for similarities. The similarities will show areas of intense competition and diluted spending power. If the majority of brands market chicken or pizza fast-food products from takeout outlets, there are multiple possibilities to build strong differentials. I will leave that in your head but provide some clues below.

One of the interesting strands of thought currently developing is that a sector or subsector can be seen as a symbiotic ecosystem, much as it is in nature. Each component contributes to and draws benefit from the entire ecosystem. Remove a component and the entire ecosystem is weakened.

If you translate this idea into pizza as fast-food, a picture begins to emerge. An optimally served market for pizza cannot survive on one fast-food joint alone. There will be multiple needs in the market.

It may not be convenient to stand and wait in the outlet. The delivery may be too expensive. The actual product may be too expensive or too cheap (with a perceived low quality). The outlet may be in the wrong location for the market. So, what about a frozen pizza with the correct quality of ingredient that can be effectively microwaved?

This example already exists to illustrate the concept of the ecosystem. Pizza outlets, delivery pizzas and frozen pizzas in various price and quality bands, already optimally populate the pizza ecosystem. The shift in this is not in creating a product and marketing it but in finding niches and gaps that enable the brand to add to the population of the ecosystem.

The issue that many will find with this is operating in a niche with a relatively lower market share depending on the size of the gap. However commercial logic says that the most effective way to gain and sustainably hold position is to position in a niche.

Practical application of the differential identifies the niche and the potential for penetration.

Beyond pricing, delivery and product formulation, there are multiple routes to differentiation that offer advantages for sustainability, not least of which are unique personal transformation, tribal belonging and customer relations.

Your ecosystem may be crowded, but there is every opportunity to stand out from the crowd to attract your own market.