HOW PRODUCT DIFFERENTIATION CAN WIN YOU MORE SALES AND GREATER PROFITS
Today the news is all about diversity. But the diversity frequently referred to is that of ethnicity, race, religion. But I want to put forward an economic theory. It takes diversity and applies it to products. My theory is that today it is essential to offer a diversity of choice if you are to maximise the profit from your brand.
This theory flies in the face of traditional economic theory that exhorted the benefits of mass production. Henry Ford built a thriving business by offering customers his Model T Ford in any colour they wanted as long as it was black.
Today cars are produced in hundreds of different colours and some even in paint finishes that change colour in different lights. Why do manufacturers do that? It has to be more expensive as keep changing the colour paint in their spray booths, the colours of their upholstery fabrics. Shorter production runs cost more per unit than long, uninterrupted runs.
Then let’s look at food products. You used to just buy a loaf of bread. But now the choice is rye or spelt. Seeded or tiger, sour dough or even, with Hovis two loaves in one – the half and half. Cadbury’s milk chocolate now comes in different shapes and sizes, with different fillings. Before, it was dairy milk or fruit and nut. Now you can get whole nut, caramel, eggs, and dozens more iterations of the product.
Or compare ordering a coffee in a café. Before it was – tea or coffee? Now it is decaf, latte, flat white, Americano, Cappucino, Frappe – and that’s before you choose which beans you want it made from – Arabica, Robusta, from Guatemala, or Kenya, or Colombia. And so it goes on. The variety is staggering.
In some markets the increase in choice is occasioned by invention. In the kitchen you used to have a choice of Aga, gas, or electric hob. Now you have ceramic hobs and induction as well as microwaves.
And of course clothing offers a dizzying array of fashions, constantly changing and sold at crazily different prices.
So why have things changed so much? Is it the consumer demanding more choice or is it the manufacturer or producer who is forcing the explosion of choice? Economic theory suggests it is the producer. The consumer rarely pines for something new or different. Indeed, one of the problems of developing nations used to be that there was very little other than essentials for them to buy so once they had earned enough money for those then they stopped working. They needed to be shown new often-unnecessary products in order to get them to strive harder.
So it’s the producers’ who have led this diversity of products. But why? Henry Ford proved that it was cheaper to mass produce on a single production line. Why complicate things?
My theory is that it is the strength of the multiple retailers that leads to the diversity of food products while, in wealthy countries, fashion, ‘keeping up with the Jones’s’ and a desire to be seen as sophisticated is what leads clothing, furniture, appliances and other product manufacturers to constantly vary their products.
With a handful of supermarket chains dominating the retail grocery market, grocery producers are faced with competition from the retailers themselves in the form of own brands. Tesco, Waitrose, Sainsbury all sell own-brand versions of the staple items. So how do you, as a maker of baked beans for instance, make customers pay more for your brand than the supermarket’s own? After all the customer likes the supermarket. The answer used to be advertising to try and convince shoppers that Heinz beans tasted better than others – more tomatoey or something. But now they have to go further – they have to bring in variations – low-sugar, low salt, or flavoured with various spices. Anything to be different from a commodity product. To make it something different from the lower-priced own label. And, of course, the more different products/varieties you have, the more shelf space you get.
So that’s the retailer-led reason. But what about cars, electrical appliances, furniture etc. There is not the same retailer pressure. Indeed, more and more of these items are now being chosen or reviewed online.
Online shopping has caused a great erosion in margins. It is quick and easy to see how much Curry’s are charging for an item and compare it with John Lewis’s or Debenhams or even your local Euronics.
So, unless the consumer, can appreciate the difference between features they are likely to buy the brand that is cheapest from the store that sells it the cheapest. For a manufacturer to be successful and profitable with his product he needs to add a perceived value to it which will warrant a higher price. His brand needs therefore to stand for quality, innovation and choice. That’s why people pay more for Apple products rather than Dell, for Mercedes rather than Kia. But even in the car market it is necessary to offer so many options that it is hard for the customer to compare prices.
Laurie Rogers is a founder member of BEST and CEO of Brandmakers. He also runs two other companies including Pelissier UK Ltd which manufactures in England a range of hand-crafted card tables. Coming in different colours, designs and finishes they reflect the benefits of product diversity.