Introduction

One of the greatest challenges — and opportunities — faced by startup companies has to do with building the brand for their product or service, and distinguishing them from the host of established and emerging competitors.  Many entrepreneurs do not fully appreciate the importance and value of a great branding and differentiation strategy.  Instead, they believe — to paraphrase Ralph Waldo Emerson in the 19th century — “if you build a better mousetrap, the world will beat a path to your door.”  This, of course, is seldom the case, and the history of startup ventures is filled with examples of good — sometimes great — businesses that failed for lack of a solid strategy to brand and differentiate themselves. According to best-selling author Seth Godin: “A brand is the set of expectations, memories, stories, and relationships that, taken together, account for a consumer’s decision to choose one product or service over another.  If the consumer (whether it’s a business, a buyer, a voter, or a donor) doesn’t pay a premium, make a selection, or spread the word, then no brand value exists for that consumer.” The important aspects of Godin’s definition of branding are that it involves the totality of your offerings, and the only things that count are your customers’ perceptions.  Thus, branding and differentiation involve creating at least the following elements:

• An image that conveys your vision, mission, and distinctiveness
• The sense of quality, convenience, and value you offer
• The “packaging” and delivery of your products and/or services
• Your approach to marketing, including traditional and social media/web marketing
• Your distribution and service after the sale
• Education about features, advantages, and benefits, and
• Tailoring your branding to specific market niches.

The purpose of these efforts is to gain customer acceptance of your products or services and perceive their value, thereby encouraging repeat purchases and avoiding making price the main reason to buy.  Entrepreneurs who make this mistake run the risk of always being vulnerable to the competition and chasing each other to the bottom of the market.

Differentiation—The Entrepreneur’s Model

Most of us understand the value of differentiating our products or services, and we often hear stories about how old and well-established firms have achieved these critical goals.  But, comparisons of such companies with startups can lead to confusion, due in large part to the fact that the likes of Apple, Coca Cola, Google, Nike, Whole Foods, BMW, etc. have been around for decades, have huge marketing budgets, are often the leaders in their industries, and really have created something special over years of product development and market research. I believe most of us in the entrepreneurial and startup world face very different challenges.  This belief is based upon counseling almost 1,500 startups over the years and witnessing first-hand how their issues are far different than those of established companies.  Examples of the types of companies I have counseled include restaurants, T-shirt companies, fitness centers, yoga studios, apparel companies, internet marketing companies, and various service companies.  For example, I live in NY, and it seems at times that there are two pizza parlors, two nail studios, a coffee shop, and two bars or restaurants on every block.  To the casual observer, these businesses may all seem quite similar in their respective business sectors.  However, this is not always the case, and successful branding and differentiation can make all of the difference for small enterprises such as these. There is a major limitation of size that can provide opportunities.  In general size comes inertia and the inability to rapidly move into high-value niche markets.  Designer Jeans, Spanks, and designer water are examples of start-ups finding niches and capitalizing on them. That’s also why big companies like to buy small ones — they have the ability to seize changes in market trends, patterns, tastes, etc.  They also have the ability to implement new technologies rapidly. To demonstrate this, I suggest the following exercise:

Informally survey customers, managers and workers about their business or product and why they find one different, better or preferable.  I would predict that in general you will find answers you may never have considered.  Some of the responses you receive may simply be subjective perceptions, but others may be real differences regarding what customers think is important about the brand and distinction of one business versus a competitor.  For example, one unexpected response I received was that some customers think only dirty pizza parlors make “real” pizza. Such attitudes from real world customers must be considered in developing your branding and differentiation strategy.  I generally find that start-up clients are frequently excellent at describing how they perceive they are different, focusing more on “features” than “benefits.”  For example the best section of many plans is the description of the product or service, the expertise of the company, and how great they are.  In contrast, however, the weakest sections of the plans are frequently the analysis of competition, market research, marketing plans, and distribution plans.  This lack of objectivity can lead to a weak and ineffective branding of a company’s products or services.

Three Keys to Branding and Differentiation

There are, however, three key areas where entrepreneurs can focus on branding and differentiation in order to avoid common pitfalls and achieve greater success:

• How are your company and its products or services truly different?
• Do enough customers care about these differences?
• How can you most effectively communicate your differences within budget?

How Are You Different?

This table provides an analytic matrix of your company’s products or services and your competition.  Filling out a competitive comparison such as this forces you to evaluate what is important, how you rate, who are your competitors and how you compare with them in the eyes, minds, hearts and pocketbooks of customers.

Do Enough Customers Care?

Does the consumer truly understand or care about your differentiation and how do you know this?  Frequently we think we have something special and the consumer either doesn’t know about it, doesn’t understand or doesn’t care. [pullquote]Your customers determine the value of your products—not you![/pullquote]For example, I love everything about Costco and I don’t care about the large packages, lack of service, lack of bags, and limited selection.  Costco carries what I want, and it’s less expensive than the competition.  Besides, I find products there that are fun, and one more thing — Costco has great hot dogs; the fact that they sell over 109 million hot dogs every year proves I am not alone. In contrast, I drink wine but I have no interest whatsoever in fine wines.  No matter how much you try to convince me of the value of a fine wine over what I normally drink, I can’t tell the difference between a ten dollar bottle and one that retails for $100 bottle. These examples illustrate two critical concepts about differentiation:

• Can the customer actually tell about differences?
• What determines quality?

While many women will crave expensive new shoes or purses, many men won’t buy new shoes until the rain comes through the holes in the soles (except their basketball shoes).  Clearly, women tend to identify differences in shoes more than (most) men. For years marketers spent millions teaching consumers that Coke is different than Pepsi, or that one brand of Vodka is actually superior to another.  In the final analysis, the customer will be the final judge of your product’s value.  The sooner you learn this principle — and the more you build it into your branding and differentiation strategy — the more successful and profitable your company will be. [pullquote]Your value proposition needs to be aligned with your customers, or they will buy from the competition. [/pullquote]

Let’s explore the question of “What determines quality?”  Many of my clients will talk about how their products are superior to the competition because they are made in the U.S., because they are made from real wood or cotton, are handmade, etc.  However, a certain segment of their customer base might not value these attributes as much as the client thinks.  For example, some customers may value synthetic over natural products, reasoning they will last longer, or they may value machine made over handmade believing that machine made products can be more precise and consistent than handmade. Some customers may believe that products made overseas can be made more affordably with equivalent if not superior quality control procedures and more detail than products made in the U.S.  Understanding how your company’s values and mission are aligned or mis-aligned with potential customers is a key to intelligent branding and competitive positioning.

How to Best Communicate Your Competitive Differences

Assuming there are differences between your products and your competition — and assuming that a significant percentage of your customer demographic cares about such differences — how do you best communicate these differences, especially without big marketing budgets and years of reputation from building your brand? For new entries into the markets for cars, phones, beer, detergent, cakes, milk, etc., it is nearly impossible to communicate meaningful differences to the public.  However, there are exceptions, especially when a new market category is created.  Two inspirational examples with regards to such marketing and differentiation are bottled water and pizza crusts.  Who would believe that someone could market water for a dollar or more when water is essentially free?  And who would believe that anyone would buy only the crust of a pizza?  The lesson here is that if you are hoping to launch a product into a crowded and existing category, you’ll have to work much harder and smarter to penetrate through the “noise” from the competition.  On the other hand, if your product represents a truly new category with virtually no competition (yet!) then your branding and positioning need to focus more on the inherent benefits of the product to your customer.  Boboli’s motto says it all…”Only YOU can top Boboli!”  Key factors that have proven to attract customers to products include:

• Image
• Culture
• Packaging, and
• Customer service.

You know the consistency of food at McDonald’s, the service of a Nordstrom’s, the appearance of a favorite neighborhood store or simply the warmth of a “Hello! How are you?”  Many of these factors evolve from the culture of the organization which is based on excellence and respect.

Conclusion

Service, image and culture are frequently the biggest opportunities and frequently least expensive opportunities for small companies to develop a brand and differentiate themselves. Some suggestions:

• Focus on your target market, segment and your ideal customer
• Market the real product your customer wants to buy (the same customer may want the prestige of a designer purse name and then buy private labels at the grocery store to save money)
• Be polite, and listen, then act, on what you have learned
• Become a trusted resource to your prospects by providing information that will help them make a good choice
• Support your efforts with a web site, social media, brochures, etc. (I can’t believe how many small businesses don’t have professional marketing collateral )
• Build an email list and send informative mailings on a regular basis
• Keep in touch with potential customers and existing customers a month or 6 months from now

In summary, branding and differentiation are two of the key areas required to bring even the greatest new products and services to market.  These two strategies are linked, and are primarily a function of ensuring that your product or service meets the needs of your consumer, by offering value as defined by that customer, not by you. As one expert said “Yup…we all know the adage….features tell, benefits sell.”  If this is true, why do so many entrepreneurs still speak in terms of the features of their product or service and not its benefits? Your prospective customers don’t care what your product or service does… they only care about what it does for THEM!