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Published: November 30, 2004

 
 

Making Differentiation Make a Difference

This argument is not intended to advocate that companies take their eye off product innovation. In fast-moving industries, where the value added to products and services may quickly be commoditized, it’s essential for companies focused on category expectations to be keenly aware of the product features that customers want, and to continue to deliver them as they improve their offerings and the expectations for the category. If they do not do these things, companies risk losing market leadership.

Orange PLC, a U.K.-based wireless operator, learned this lesson well when it debuted its mobile service, at the same time as another new entrant, in a market that already had two large players. Prior to launching its service in 1994, Orange had learned through consumer satisfaction surveys that cell phone customers were highly critical of mobile phone service providers. They complained about all kinds of issues — how call charges were computed, the mind-numbing number of rate plans, the poor network reliability. So Orange promised to reduce disconnected calls and improve reception. It also offered simpler rate plans, free itemized billing, caller ID, and a money-back guarantee if service failed.

None of these ideas was earth-shattering or technically challenging. But in the still relatively new market, being a standard-bearer for the category helped Orange gain substantial competitive momentum.

In response to Orange’s success, rivals tried reducing their prices aggressively, threatening Orange’s growth and survival. But Orange didn’t change its strategy; it continued to add useful differentiating features that satisfied the basic needs customers expected their mobile carriers to fulfill: two lines on one phone, ISDN access, conference calling and prepay services, and credits for calls disconnected by the network.

Equity markets appear to have rewarded Orange’s strategy. Orange and One2One, another startup, received their licenses at the same time. Both were well capitalized, and they were equally regulated. Neither had a technological advantage over the other. But while One2One stuck with the practices that gave the mobile phone service category a bad reputation among consumers — many calling plans, confusing billing approaches, and quirky networks — Orange sought to change them. In 1999, both companies were sold: Orange to Mannesmann and One2One to Deutsche Telekom. Orange fetched £20 billion, a premium of £13.1 billion over One2One’s price.

What these examples tell us, and what we have learned from our research, is that most companies succeed by consistently satisfying basic customer needs better than the competition, not by continuously pitching them a unique selling proposition.

Author Profiles:


Patrick Barwise (pbarwise@london.edu) is professor of management and marketing at London Business School. He and Seán Meehan are the authors of Simply Better: Winning and Keeping Customers by Delivering What Matters Most (Harvard Business School Press, 2004).

Seán Meehan (meehan@imd.ch) is the Martin Hilti Professor of Marketing and Change Management at IMD, Lausanne, Switzerland, and coauthor of Simply Better (www.simply-better.biz).
 
 
 
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