How to leverage “Hidden Differentiation” to outperform your competitors

This article is for businesses that:

• Are hyperlocal – You serve local customers and aren’t able to serve customers virtually. People may be willing to travel for your product/service, but your main clientele is neighbourhood based.
• Have multiple similar competitors locally.
• Aren’t differentiated.
• Find themselves at capacity and unable to serve more customers even if they wanted to.

MBA and entrepreneurship programs place a lot of emphasis on differentiation, competitive advantage, or defensibility. It rose to meet the rising tide of tech startups.

But what if you’re:

• Planning on growing a company slowly without external capital.
• Are on the bleeding edge of innovation and doing something that people can’t easily comprehend without first-hand experience of your solution.
• Running a restaurant, retail business, car dealership, or any other hyperlocal business.
• In the service industry like a coach, consultant, lawyer, etc.

Here’s how you can still be different without really being different.

Do you really need to be different?

Having a competitive advantage or key differentiator always helps, but for traditional businesses where the market is proven, it isn’t necessary. You can run a profitable business as long as you are fulfilling an unmet need/desire/gap in the market or as long as your market isn’t saturated.

That said, every business owner I speak to will claim to be different in some way

• We provide the best service.
• We have the most payment friendly plans.
• Our quality is bar none.

This doesn’t count as differentiation, EVEN if you are indeed better than your competitor in those ways. They instead fall into what I categorize as hidden differentiation.

What is Hidden Differentiation?

Hidden differentiation is differentiation that isn’t immediately or easily communicable, understood, or even experienced by your customers. It isn’t limited to WHAT you provide as a service/sell. It could also include HOW you service your customers, solve the same problem in a different way, or even operationalize your business differently.

Even if what you sell is indeed different, if it’s not easily understood because it’s too innovative, there isn’t the right marketing language to describe it, or because your customers have never experienced this new way of doing things before, you fall under my categorization of hidden differentiation.

Examples of Hidden Differentiation based on WHAT

• Korean fried chicken vs. regular (American) fried chicken.
  • Or you’re selling Vietnamese Pho (exactly the same as all the other Pho restaurants out there), but using a unique family recipe that taste a lot better.
• Dropbox (in their early days) vs. Megaupload/Rapidshare/etc. file sharing services when the cloud wasn’t easily understood.
• Tinder vs. Match.com/Plenty of Fish/etc. legacy dating websites.

In some instances, the manifestation of WHAT is different is powered by a fundamentally different way of HOW it works/solves a customers problem.

Examples of hidden differentiation based on HOW

Your core offering isn’t differentiated – perhaps because there are fundamental limitations that prevent it (e.g. Dentists/Doctors/Dieticians/etc. professionals have a strict code of conduct on how to provide their services or market themselves) or maybe because it isn’t a priority as there is unmet demand in your market. Instead, you may choose to differentiate by doing things differently.

It may result in the delivery of a customer experience that is not at all different from your competitors despite having a big effect on reducing cost or improving other aspects of operating the business.

• Accepting financing options in lieu of upfront payment.
• Using better systems/processes/technology/automation to operate more efficiently.
  • McDonalds had a unique kitchen design layout + heavy emphasis on Standard Operating Procedures (SOPs) that enabled them to outperform other fast food restaurants. They also further widened the gap by utilizing an innovative franchising model which emphasized a real estate play – watch the biographical film The Founder starring Michael Keaton for an entertaining view of this.
• Better management/culture
  • Resulting in improved team performance and/or lower employee turnover which results in lower costs.
• Emphasizing the brand, experience, and integrated ecosystem
  • How Apple differs from other smartphone/electronic manufacturers.
• Clearly communicating different business values
  • Tesla: Save the planet, and look cool doing so.
  • Dyson: High quality tech vacuums that appeal to men.

Some of these border between hidden differentiation and true differentiation as they are in fact communicable through imagery or your sales/marketing copy. I still categorize them as “hidden” because they are long-term plays that will face a steep wall of skepticism if your business is new or hasn’t yet established a strong reputation.

It’s also worth noting that it’s easy to mimic differentiation based on brand/experience/values – many competitors will follow your lead once they catch on. But hard to copy – unless these competitors are authentic to those values (it’s difficult to adjust entrenched company culture/values), or if they don’t end up dominating the market (it’s hard for them to dethrone your reputation), they won’t be able to effectively copy you.

How to acquire customers if your differentiation is “hidden”

Because it’s difficult to communicate through copywriting in marketing or through persuasion in sales.

Customers need to have experienced your service before they really understand its value and how it contrasts against other alternatives.

Avoid

There are exceptions, and things may change depending on how customers try to search or find businesses/services around them.

Traditional paid (newspaper, billboard, Google Pay Per Click, etc.) & Social Media Ads.

They’re effective to a degree, mostly to build awareness, but won’t generally give you exponential returns compared to some of the other channels below. This is because paid ads are limited to imagery and copy (the words, or what you say – if it’s radio/video/podcast), and as we’ve covered, hidden differentiators are difficult to communicate without a customer having first experienced it.

SEO (Search Engine Optimization)

Isn’t as effective for hyperlocal targeting. Is OK if you are able to service/sell virtually/remotely.

Content Marketing/Thought Leadership

Like SEO, good for serving a wider audience, but less effective for a local audience. Your customer will have already done their research/educated themselves, and are simply looking for the best local options at this point. It’s a lot harder to justify the effort of these activities if they’re limited towards a specific locale.

Focus on

Designing an amazing experience. It will result in improved word-of-mouth referrals (which you probably already notice is your primary channel).

Reviews/Ratings/Testimonials

Encourage customers to leave a review by:

• Identifying positive milestones in the customer’s journey/experience and soliciting reviews right after.
  • Customers are most willing to provide a glowing review right after a good experience.
  • Create positive milestones by exceeding expectations (create magical moments of surprise and delight for your customers).
• Being proactive instead of reactive about negative experiences
  • Closely track your customers behaviour, identify early indicators of a negative experience, interject and resolve before it has escalated to a point where the customer feels the need to complain publically.
  • It takes roughly 40 positive reviews to offset 1 negative review (The Secret Ratio That Proves Why Customer Reviews Are So Important)
• Incentivizing reviews
  • Ideally through credits (so that they come back and spend that credit with you), instead of cash, that they will just spend elsewhere.
  • Be careful about over-incentivizing as it could lead to inauthentic reviews.
• Making it easy
  • Don’t just ask them to leave a review, make the experience of leaving one as simple as possible by linking them directly to the review page or embedding a review box where possible.

Referrals

Much like asking for reviews

• Incentivize referrals?
  • Be careful and experiment with incentivizing referrals though. Providing external motivation to encourage a behaviour may decrease internal motivation (in most cases, making a referral is a step above leaving a review, and many customers want to only do so because they are sincere advocates and aren’t just in it for the money) – I’ve seen instances where providing credit/discounts actually decreased referrals.
  • If done effectively, can work well
    • Airbnb: $75 credit for yourself and a friend when you refer someone.
    • Dropbox: more storage for you and your friend if you refer a friend (notice how the referral mechanism is tied directly to the product/solution here, and not just a simple marketing campaign).
    • Gmail/One+: Exclusive access, you can only join/order if you’ve received a referral code from a friend.
• Make it easy
  • Pre-populate a simple referral message, have quick click to share/field for emails, such that you can send out/trigger the referral for them.
  • Make it easy for referral partners to send people your way by giving them templates for introductions.
• Cultivate referral partnerships
  • Typically through other organizations, service providers, or agencies.
  • e.g. Mortgage agent + Realtor + Legal firm + Appraiser/Inspector
  • Track all the referrals you made and received.
  • Follow-up on the referrals you made – let the other party see that you’re interested in improving the quality of people you send their way.
  • Provide updates on the ones you received and help the other party understand what makes a good referral for you.

For a good read on how to encourage Review and Referral behaviours, check out Contagious: Why Things Catch On by Jonah Berger.

Google Map

It should go without saying, if you’re local, you definitely need a Google business listing set up and ensure that you have your listing/hours/holiday availability updated on Google. All other social channels are low priority.

Retention

Keeping the customers you already have. Not through dark design – which if you’re unfamiliar with, is the practice of making it difficult for customers to cancel/unsubscribe by making customers go through many hoops (e.g. you can only cancel by calling in – even worse if the call center has ridiculous wait times, or making the option to do so really difficult to find or unintuitive.

• Instead, create, emphasize, and enhance the experience. Don’t simply focus on delivering the product/service/solution, the outcome/end result matters; but for these type of businesses, the customer’s journey and experience can make a big difference in customer loyalty.
• Highlight the value of working with you in the long run – e.g. an Optometrist I visited recently emphasized the benefit of having historical records with them so that they can evaluate assessment patterns and better identify early indicators for potential problems like retinal thinning.
• Integrate your solution/service with other systems/processes that your customer currently utilizes. i.e. their accounting software, payroll process/systems, calendar, or other. It not only adds value through added convenience, but the more you integrate, the bigger a headache it becomes for your customer to switch away.
• Proactively managing negative experiences (similar to above point under Reviews/Ratings/Testimonials)
  • By doing this well, you improve retention by reducing churn (% of customers that leave you), whilst also minimizing negative reviews that may alienate prospective customers.
• Fostering a vibrant and connected community amongst your customers
  • NADA Grocery started and manages the Zero Waste Vancouver Facebook group.
  • Notice that it’s not centered around their brand; instead, they empower their community to support each other in solving problems related to their cause (which is also related to their business in a way).
  • GoPro/Redbull have both applied the same technique pretty effectively with the extreme sports community.
  • It becomes harder for customers to leave your brand when they’ve formed bonds and relationships with other members in the community. This also creates a stronger attachment to the brand identity that your organization represents.

Community Building

Community isn’t only good for retention, it’s also great for increasing brand awareness and leadership (especially if your brand is a strong advocate for a specific community/cause). This helps attract prospective customers and influencers.

Social Media

If you’re a service business, it is probably only effective for community building (as mentioned, it’s difficult to communicate an experience through imagery and words alone).

If you’re in F&B or have a product with a clearly understood design. Social media can work with the right imagery/video even if it doesn’t clearly communicate differentiation.

• Because it can serve to remind prospective and current customers that you’re around.
• It can elicit a craving/desire for your product (especially if it’s a consumable type of product – food, ski resorts, etc.)

Automation

Somewhat outdated (from 2016), but for each hour of clinical time, doctors spend 2 hours on administrative work. Even if you aren’t at capacity, automation will still help reduce cost and free up time to focus on other activities in your business or give you more personal time for family and relaxation.

Automation should never be just for the sake of efficiency, and never at the expense of customer experience.

Automation shouldn’t make you less human, it should give you time to be more human.

What is good for automation?

• Mindless repetitive tasks like sending out reminders, answering Frequently Asked Questions (FAQs).
  • Automation doesn’t entail technology/software, you can also automate by creating processes, workflows, or templates that are easily shared.
• Tedious tasks that nobody enjoys (usually administrative).

Applied correctly, automation should enable you to serve more customers and spend more time improving the experience with customers that you’re already serving.

Optimize Revenue

Existing customers have already tried you, understand your hidden differentiation, like you, and are more inclined to spend more with you.

• Optimize Pricing: Another big topic, read more about how to set pricing/optimize pricing in my other article here.
• Explore how you can increase purchase frequency. Examples include:
  • Loyalty stamp cards: Buy 10 meals, get one free (encourages patron to spend more frequently to claim the reward).
  • Credits applied to future purchases (earned through accumulated rewards or directly after a purchase), encourages them to come back to you again soon – especially if there is an expiry date.
  • Subscribe and save models (also makes revenue forecasting a lot more predictable).
  • Build a habit/ritual into your solution: e.g. encouraging the notion of making brunch a Sunday family routine.
  • Sell refills
• Increase average order size
  • Through up-selling/cross-selling (Google them if you’re unclear on the terms and how they differ).
  • Bundling solutions
  • Free shipping thresholds
  • Discounts on minimum purchase value
  • Volume discounts.

Website: About Us/Contact Us page/Product or Service pages

The importance of a good website will vary depending on your business and what you sell. Even the most hyperlocal retail locations will still benefit from some form of digital presence, more so now than ever with the changes in consumer shopping behaviour brought about by COVID.

For businesses that depend on hidden differentiators, you’ll want to pay closer attention to your About Us and Contact Us page than most regular businesses. Because customers can’t differentiate you from your competitors at face value, their place more emphasis on who they buy from when making these purchase decisions.

A good About Us page should clearly communicate:

• Your mission & values
• Your company/founder’s story (if it’s relevant and relatable)
• Your team and their roles
• Other gravy that makes it better include:
  • Testimonials
  • Case studies/White papers

Your Contact Us page:

• Should have your physical address (not necessary if you ONLY provide remote/virtual services)
• Ensure operational hours and holiday hours are up-to-date
• If you provide a phone # or email, ensure timely response (call back if they leave a VM, reply to emails within 24 hours, even if you can’t provide a resolution – communicating that you’ve heard their problem and are working on it will help ease a lot of frustration or concern).
• Detailed instructions to get to your location, especially if your address is to a common building/complex shared by multiple businesses.
• Press specific contact (if relevant)
• FAQs or a search function to navigate to what they’re looking for on your website
• Feel free to include notes on what you DON’T want to have people asking about – e.g. guest posting/link exchanging/soliciting sales for website design/SEO offers.
• A link to/embedded testimonial form so that happy customers can leave you a review!

Lastly, play nice with your competitors

A rising tide floats all boats – don’t view other establishments as competitors, think about how you can collaborate to increase local awareness and popularize your type of service.

Managing Expectation vs. Experience

Since we touched so heavily on experience in this article, it would be remiss for me to not elaborate on the role of managing expectations in creating positive customer experiences.

Bad experiences arise when something unexpected (negative) happens. If a customer is aware of potential risks/flaws, they will accept it as part of the offering and it won’t negatively impact their experience or perception of you as the provider.

Positive experiences on the other hand, arise when you exceed their expectation in the fundamental delivery of your offering.

If you simply meet their expectations, it’s neutral.

True differentiation can come with time

As a final word of encouragement:

Don’t let the lack of a differentiator hold you back from starting a business. Having a strong and clear differentiator doesn’t guarantee immediate success. Though it isn’t necessary to be different, the ability to clearly communicate how you’re different will always bring benefits. Be comforted in knowing that you can gradually figure out or develop your differentiator over time.