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 / Winter 2004 / Issue 37(originally published by Booz & Company)


Making Differentiation Make a Difference

By paying attention to what consumers really want, companies can attract new customers and create a distinctive brand.

It is a widely accepted and rarely challenged tenet of marketing that companies can sustain competitive advantage only through “new and improved” product differentiation based on unique features and benefits. What a mistake.

Many companies wrongly allocate millions of dollars to add a slight twist to their product — a new color, a new taste, a new chemical, or a new label — to distinguish it from the previous version. They put an equal amount of money into promoting their new-and-improved product through advertising and other marketing campaigns. Their return, over the long term, is usually marginal.

Marketers ardently care about those little features because they believe the features make their products and services stand out. That’s why they try so hard to build their brand’s performance on tidbits like a deodorant with vitamin E, the cereal that proclaims it stays crispy in milk longer than the others, or the Web-enabled refrigerator. But customers hardly seem impressed. With all the brand tinkering that’s gone on in the past decade, the University of Michigan’s American Customer Satisfaction Index, which measures satisfaction for 200 companies in 40 industries, has never exceeded 75 out of a theoretical maximum of 100. Although scores in some industries have risen in the last few years, many industries rate lower today than they did in 1994.

What’s wrong? When companies are so preoccupied with fiddling with individual products and brands, they lose sight of the value they can create for themselves, and for consumers, by raising the bar for the entire category. If Crest, Exxon Mobil, Tide, Citibank, or Marriott disappeared tomorrow, most American consumers would at worst feel slightly inconvenienced by having to switch to an indistinguishable alternative. (How different is Pepsodent, Shell, All, Chase, or Hyatt?) But how would they feel if an entire category — toothpaste, gasoline, detergent, consumer banks, or hotels — disappeared? That would have an effect on their lives they’d notice.

So how can a company be rewarded for getting consumers to notice their role in raising category quality? To start, companies need to know what customers really care about. In 1993, Unilever launched Mentadent toothpaste, a combination of toothpaste, baking soda, and peroxide delivered through a clever pump. Within two years, Mentadent became a $250 million brand with a 12 percent share of the U.S. toothpaste market, an impressive figure in this crowded category. Why? Because Unilever understood that dental hygiene is what’s on people’s minds when they buy toothpaste. So the company created a product that offered superior dental hygiene. Unlike a meaningless pink stripe down the middle of the toothpaste, this was differentiation that made a difference.

Because the product-extension mentality of “uniqueness without a difference” is so strong, however, executives who try to manage their brands by influencing category value frequently face an uphill struggle. That was Pat O’Driscoll’s experience when she was asked in mid-1999 to lead an effort to improve Shell Oil Company’s gasoline sales in its $30 billion European retail operation. Ms. O’Driscoll, then vice president of European retail sales for the oil giant, conducted extensive customer surveys to determine what really mattered to customers of all gas stations — not just Shell’s — and what generally dissatisfied them. Overwhelmingly, customers responded that they wanted to refuel at a reasonable cost; be sheltered from sun, wind, and rain; and pay and exit quickly. Additionally, they expected the pumps and bathrooms to be clean and working.

Some Shell executives were hesitant to accept that merely fixing these basics would revitalize their European gas station business. To convince them otherwise, Ms. O’Driscoll asked senior and middle managers to make regular, unannounced visits to gas stations. She even conducted business meetings at gas station sites, all in an effort to let executives test her conclusions on customers by gauging their response to Shell’s possible new initiative. Finally convinced that customers would respond well, Shell committed to retrofitting its European gas stations to meet these customer requirements by early 2000. The following year, Shell reported a double-digit increase in the European region’s gasoline sales while its return on capital, which was zero prior to the initiative, reached double digits and exceeded targets.

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