In today’s ultra–competitive markets, “you’re either eating lunch or being lunch,” says marketing guru Philip Kotler. One of the best ways to avoid being lunch is to differentiate your products.Trained as a macroeconomist, Philip Kotler today is the Kellogg Graduate School of Management’s S.C. Johnson & Son Distinguished Professor of International Marketing at Northwestern University near Chicago. He says that his eat–lunch–or–be–lunch philosophy applies equally to consumer and industrial companies, as both grab for a rapidly shrinking group of customers in oversaturated markets, and as customers have access to more and more goods via the Internet.
   “It used to be that the superior firm in the industry usually earned 20 percent to 30 percent more in the marketplace,” Kotler says. “But today, if you’re lucky, it’s 10 percent if you’re the best.”
   As a result, a product has to truly stand out to make an impression. Although to some degree that means making better products, Kotler says it’s more important to show customers new ways of using products, how products can be used more efficiently and how products can help customers solve problems.
   That kind of marketing and product differentiation is made easier by today’s technology, Kotler says. Keeping customer information in databases means that marketing programmes can be tailored to customers’ needs – one of the best ways to differentiate a product.
   “The company that wins is the company that’s information–based,” he says. “You’re never selling a product – you’re creating an offering. And that’s something you can differentiate.”
   In differentiating products, companies also have to differentiate their customers. That means scrutinising who is buying what from the company and perhaps deciding that the return from certain customers doesn’t justify the time, effort and expense it takes to win their business. In addition, it means scouting the market for potential new, substantial customers and investing in long–term relationships with them. Such investment may not yield immediate results, says Kotler, but the benefits may be longer term. Instead of making one quick sale, a company develops a customer relationship that ultimately will be far more profitable.

No customer loyalty
But even companies that cultivate long–term relationships and provide extra service cannot count on customer loyalty. “Actually,” says Kotler wryly, “it is not in the customer’s interest to be loyal.”
   Nor does Kotler think that cutting prices to attract customers is the answer. “If you overdo sales promotion, you are diluting your brand equity,” he says. Instead, he says, it’s better to differentiate a product by positioning it as unique, either for its own characteristics or because it’s aimed at a select group. That is why niche companies and niche products are often highly successful. Their volume isn’t large but they are marketing highly targeted products to highly targeted customers. As a result, very little of their marketing and sales budgets is wasted, and return on investment is high.
   The explosive growth of the Internet can be a boost for product differentiation, but Kotler warns that there are also pitfalls. On the Internet, a company’s customers have access to more information about its products and its competitors’ products, including what may be broad differences in price. Again, that means companies have to give customers and potential customers better information about a product, and perhaps added services, to win their business.
   The plus side of the Internet is that it allows companies to offer product information in a completely different way and to save money on sales calls. In fact, says Kotler, most large companies today do not want salespeople calling on them. What they want is information that can be reviewed when it suits company managers, not sales calls that eat up time during the workday.
   Connected to this are stronger relationships with distributors. It is they who are helping move products, so it benefits companies to invest time and effort in long–term relationships.

Fewer suppliers
Companies also need to be aware that customers are using fewer suppliers, because that reduces record–keeping costs and logistical problems and enhances quality control. One way to differentiate a product is to show customers how the product – and its manufacturer – can help in all those areas.
   Another way of differentiating your products and company is to practise quid pro quo – offer to buy from a potential customer in exchange for a reciprocal purchase.
   In Europe, the launch of the euro, the common European currency, led to another form of product differentiation. Companies that can offer customers invoicing in euros are offering an extra service, making life easier for their customers and thus differentiating themselves and their products.
   But the euro, like the Internet, also means increased competition, because the common currency makes it easier for companies to do business across European borders.
   Experts say another effective way to differentiate products is to mesh a company’s interests with its customers’. To do that, the company first lists all the benefits various products provide to customers, according to the customers themselves. The task is not as daunting as it may sound, because the majority of customers use very few criteria in their buying decisions. Next, the company lists the advantages of each product for the company. By comparing the two lists, a company should be able to identify its optimal products. Companies can more easily differentiate their products if they focus on what customers consider beneficial.
   Kotler warns that product differentiation can also make it tougher to win new customers. As companies do a better job of differentiating themselves and their products, they tend also to do a better job of holding on to their customers. In addition, there is more “up–selling” – persuading customers to buy more advanced products. As a result, Kotler doesn’t think the day will come soon when company managers can stop worrying about becoming lunch.

Ariane Sains  
a Stockholm–based journalist and regular   
contributor to international business publications.  
photo Rob Vanstone