In order for a business to succeed, its owners and executives need to develop some mechanism to separate it from its competitors. There are, in my mind, three main differentiating factors that encompass all aspects of a company’s distinctiveness: price, product, and people . . . the three P’s.
Price is a common differentiator that businesses attempt to promote. A lot of companies may claim that they have the “lowest prices in town” or a similar adage in order to draw in customers. Walmart is a large-scale example of a corporation that sets itself apart based on the price of its products. For years, Walmart’s slogan was “Always Low Prices” and there was little doubt about how Walmart attempted to get people in their doors.
Using price as the main differentiating factor in a business comes with risks. The company must be either very large (in order to have the economies of scale necessary to keep prices low) or must be very frugal. Cutting costs on technology, employees, and other inputs can lead to trouble in the long run. Walmart itself has had well-publicized difficulty in its treatment of employees, something they finally attempted to correct last year.
Some companies will try to gain market share by creating a better product than its competitors. BMW, who uses the slogan “The Ultimate Driving Machine,” comes to mind. BMW has created the perception that their cars are better than most other options on the road, although Consumer Reports notes that their reliability does not necessarily align with that viewpoint. BMW clearly does not differentiate on price, and because they position their products as superior, consumers are willing to pay more for a BMW than for another car.
The hardest differentiation to promote is the least tangible. Companies in service industries often have to differentiate based on the quality of the service that they provide. In order to give exceptional service, a business has to have exceptional people.
Although there is difficulty in differentiating based on people, the effect on the customer of great service are long-lasting and can create more loyalty than either price or product differentiators do.
Southwest Airlines has long been a paragon in the air passenger industry as having exceptional service. Last year, there was a particular example of how the airline provided a personal touch to one passenger during a very important time for her and her family. Most Southwest customers that I’ve spoken to love the airline and will fly with them no matter what, even if their price is not the lowest.
Chick-fil-A is another company that prides itself on its people. Whether or not Chick-fil-A has the best chicken sandwiches around is a matter of opinion, and its prices are not exactly low, yet they have tremendous customer loyalty, as anyone who has sat in a long drive-thru there can attest. One of the things that I always notice at Chick-fil-A is that their employees will always say “my pleasure” when I thank them. It’s a small, but very noticeable, habit, and it makes the customer feel welcome. Chick-fil-A has created such goodwill with its customers that it can be incredibly successful while only being open 85 percent as often as other similar restaurants.
Smaller businesses may be able to do simple steps to ensure that their service stands out, too. Two recent interactions I had were noteworthy for the small tokens of appreciation that people provided to me. In one instance, I went to a health provider, and it was my first time there, and the receptionist welcomed me and shook my hand. Many times, the first person you meet in a business is cheerful and inviting, but I never received a handshake from a receptionist before, and that gesture stuck with me.
Another example was with a professional service provider. It was my first time going there, and I had an appointment. When I walked in the door, the receptionist said, “You must be Dan. Dave is expecting you and will be with you shortly.” The impressiveness of this display certainly made me feel important as a potential customer.
Businesses that cannot differentiate on price or product have to stand out because of their people and their service. Finding a way to do that is not as hard as it may seem, and the effects can make a huge difference.
By Dan Massey, CPA, Manager