Your small business is different than any of the other 32.5 million small businesses in the US, right? But do your customers know it? Whether you’re looking to start a company find a way to set yours apart from the pack, however, you need more than just a good idea, funding, and elbow grease—you’ll need a differentiation strategy. Why Is Differentiating Your New Business Important? Why would a customer choose your new gelato shop over Baskin-Robbins or another local ice cream store? If you’re having trouble answering that question, then you need a differentiation strategy. Your differentiation strategy is how you distinguish your business, your products, and your services from other businesses in your space. It may highlight a specific quality of your service or a price points or even a company mission or philosophy. Differentiation is an important way for your business to add value, increase brand recognition, and gain a competitive advantage. And the more competition in your market, the more important differentiation becomes. Continuing with the gelato example, you may find that you can differentiate by offering flavors that no competitor in your market has. By stepping outside the scope of what your competitors offer, you can suddenly provide new unmatched value. These unique flavors give you an advantage over your competition and can help you acquire customers who may not have switched previously. Unfortunately, differentiating your gelato business in a competitive market may take more than just adding additional flavors or unique toppings. You may need to dive into your competition to find the best opportunities to differentiate your small business from others on Main Street. Start By Analyzing Your Competition The process of analyzing your competition is an important first step because it gives you a broader view of your competition and the market as a whole. With this new perspective, you can now begin to identify your unique advantage(s)—differentiation—or what you aspire your unique advantage(s) to be. For example, you may decide to open a clothing retail store. Selling apparel isn’t necessarily unique and the market may already be saturated with competition, so how do you plan to stand out? Maybe you offer a clothing rental service, maybe you hire a fashion consultant to assist your customers, or maybe you focus only on businesswear. Before you can find a unique path forward, you need to see what already exists—and what opportunities are available. A competitive analysis will offer more direction for you to build your differentiation strategy, and it should be an always-on exercise you conduct to make sure you are continuing to develop competitive advantages. How Do You Differentiate Your New Small Business? There are no limits to the strategies available for differentiating your small business. From quality and price to exclusivity and reputation, businesses can differentiate themselves from local and global competition. Below are 3 common differentiation strategies for small businesses to consider. 1. Provide An Unmatched Customer Experience A recent survey from Zendesk on the impact of customer service found that 87% of respondents allow a customer experience to influence future buying behavior—including recommending the business to others (67%) and repurchasing from that company (54%). Differentiating your new business through quality customer service will benefit you in the short and long run because it can: \tImprove customer retention \tIncrease the customer lifetime value (CLV) \tBuild brand equity and awareness \tLead to more referrals and word-of-mouth advertising If you want to improve your customer service, it starts with your employees. First, hire employees who are qualified, the right fit, and—if they are customer-facing—have great people skills. In addition to the hiring process, also make sure you onboard and train your employees with customer service as a core focus of your business. Finally, have a system for collecting and reviewing customer and employee feedback in addition to implementing changes whenever necessary. Providing a great customer experience goes beyond customer service; it extends to the entire customer-business interaction. Other ways to improve the customer experience can include: \tSet clear and honest customer expectations: Some businesses have the tendency to oversell and underdeliver, which can leave the customer feeling misled or dissatisfied. For example, many construction businesses will set unrealistic timelines on projects just to win the bid. As work gets underway, they may ask for extensions, miss deadlines, or cut corners just to hit those timelines—which can all have negative effects on the client experience. Instead, be honest with your customers and set expectations that you can hit or exceed. This will ultimately lead to more satisfied customers and can improve your brand’s reputation within your market. \tBe mindful of your customers’ time: Time is money, right? Well, it can certainly feel that way to your customers—especially when you leave them waiting. A study from TimeTrade found that 75% of retail businesses surveyed lost customers due to time-related issues. These issues can include wait time, travel distance, service time, or transaction delays. These time-related issues can negatively affect the customer experience, but they can also be opportunities for you to prioritize and differentiate yourself from the competition. \tMake the shopping experience memorable: If you want to differentiate yourself from the competition, create a memorable shopping experience. This can include a fun and vibrant atmosphere, friendly staff, a streamlined store layout, or customer-centric features like buy-online-pickup-in-store (BOPIS). A recent study from SOTI found that 73% of people surveyed thought self-service checkout options improved the in-store shopping experience—which may be an opportunity for you to differentiate your business and improve customer satisfaction. 2. Find And Own A Niche If you’re a new business entering a market with established competition, it helps to start by specializing in serving a specific clientele. This approach is also referred to as the market segmentation strategy and involves isolating and targeting smaller groups within a bigger market (even within your own business). Take Under Armour, for example, which recently surpassed Adidas as the #2 sports brand in the US with a 14% market share behind only Nike (46%). When Under Armour started in 1996, nobody could have imagined this moisture-wicking athletic T-shirt company would grow to become Nike’s biggest rival. Before expanding to jerseys, shorts, or shoes, it spent its early years focused solely on athletic shirts and working to dominate that niche. Finding and owning a niche within a larger market is a great strategy for new businesses because it’s based on differentiating yourself to a specific audience that’s being underserved. By narrowing your focus, you can devote yourself to satisfying a unique need or problem—differentiating yourself as the go-to business for that audience. The main benefits of using the niche strategy to enter a competitive market are that you can: \tRemove some of the competition: By isolating a subset of a market, you can phase out some of the indirect competitors. Yes, other businesses may sell workout equipment or bicycles, but if you sell racing bikes and equipment for marathon cyclists, you can eliminate the less-targeted competitors. \tCharge more for your product or services: Customers are usually more willing to pay for specialty products or services that are uniquely targeted to their needs. While you may have fewer potential customers, you can often earn more per transaction. \tSimplify your marketing efforts: Targeting a niche within a larger market allows you to focus your marketing on that single audience. By narrowing your marketing to focus on what differentiates your business, you can develop a more loyal community and grow your identity to align with your differentiation strategy. 3. Add More Value To Your Community Value is one of the best ways to differentiate your new business, but value is complex. New businesses will often use lower prices, better quality, or offer more in order to increase customer value. Sometimes, small businesses can add value and differentiate themselves by simply being more involved in their community. Instead of focusing on internal changes to add value to your customers, consider going outward and adding value through community involvement. While not directly related to your business, it can increase your brand image and loyalty—which can be especially helpful for differentiating a new business in a saturated market. For example, if you’re starting a dog grooming business, you could become a volunteer at the local humane society or offer your services at some of their adoption events. Not only is a great way to build trust and good will in your community, but it can provide a great platform for networking with potential customers. Some ways you can get involved in your community and add more value include: \tAttend or host industry-related events: Networking at events or hosting meetups can get your new business in front of other people in your community and help to position yourself as an influential member of the community and subject matter expert. For example, if you’re opening a tax business, consider organizing tax planning meetups for local companies every quarter. Not only can you use it to acquire new clients and market your specialty, but you can build your name within the community and establish goodwill. \tVolunteer, donate, or sponsor locally: 85% of customers view businesses that contribute to charities in a more positive light. As a new small business, consider finding local causes that align with your mission and contribute time or money. You can also sponsor other local events to attach your business to causes or activities others in your community care about. \tPartner with established, complementary businesses: If you want to add more value than your competition, find complementary businesses to collaborate and partner with. For example, if you’re opening a lawn care business, consider partnering with an established pool cleaning business to offer a summer package of pool cleaning and yard services. Not only can you provide more value to customers through lower prices or more convenience, but you can use that brand’s established name and client base to penetrate the market as a new business. FAQs How do you communicate your differentiation strategy to customers? Whether you aim to differentiate from the competition through lower prices, better quality, specialization, customer service, or any other strategy, you need to communicate it effectively for it to work. Your differentiation strategy needs to be a cohesive part of your marketing mix and your customer experience. From your social channels and website to your store displays and advertising, there needs to be a clear and consistent message explaining your unique difference. Remember, differentiation is more than just what you say, it’s what you do and how you do it. If you’re selling quality as your differentiation, your office, product, employees, website, and even logo needs to convey that message. You’re a new business, you need to build trust quickly and a cohesive strategy can help you do that.For example, if you are trying to penetrate the market as a low-cost provider, you should have signs and marketing collateral that compares your price to others in your area. You may also want to implement a store policy where you will beat any of your competitors’ prices. A lot of businesses claim to offer the best price, but if you will actually beat any price from your competitors, you are likely to build a reputation quickly as the brand with the lowest, best price. What are the risks of a differentiation strategy? Differentiating your business in a competitive market is not always easy—especially for new companies that are worried about other problems like quality control, hiring, or dealing with escalating inflation. The risks with differentiating your new business include factors like: \tThere may not be enough demand: If you try differentiating through a niche focus, there may not be a large enough market to sustain your business. \tConsumer interests change: Buying habits, technology, environmental changes, and other unpredictable factors can affect your unique business. \tResources may be limited: Differentiating can take effort and resources, which you may not have readily available or may be better used elsewhere in your business. What is an example of differentiation in business? Differentiating a business is simply when you offer something your competition cannot easily replicate. The most obvious examples are businesses that have established brand equity that makes the perceived value more than the physical services or products they sell. Apple is a great example of differentiation because they have to build a brand that makes their products more “valuable” in the eyes of customers even if the technology is not much different from what else is available. Customers, in many ways, are buying Apple products (much like Starbucks) for the brand name or prestige they feel and not the tangible features. Make Your Difference Matter At the end of the day, your business is always going to be different from others on Main Street. Even if you sell the exact same products or services, you have different employees, a different reputation, and you—as the owner—are different. These subtle factors, in addition to the differentiation strategies outlined above, can have a huge influence on the success of your new small business. Even if you’re not able to implement major differentiation strategies at the onset, you can still prioritize small habits like excellent customer service and reliability, which can still help to differentiate you from the competition. **** The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter. The views and opinions expressed in this blog are those of the author and do not necessarily reflect the official policy or position of Lendio. 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