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Innovation and differentiation are the keys to competing against established brands as a startup. … [+]
Differentiation is one of the most powerful marketing concepts you need in your arsenal in order to successfully take a startup project from idea to exit.
Competing with big, established brands directly is not a smart strategic move. Obviously, large corporations have more resources at their disposal than early-stage startups. Moreover, they benefit from economies of scale – thanks to mass production and division of labor they are (usually) highly cost-effective in their production process, which means as a startup you would have a hard time competing on the basis of price alone.
This is where differentiation comes in – you can win market share not by directly out-competing the established brands, but by innovation that allows you to disrupt the market. This is why innovation is one of the key variables determining the value of a startup project.
Your value offering needs to be sufficiently different than the offering of the established brands, otherwise, it would be tough to convince users to make a transition. After all, the cost of switching from one solution to another is high, which means that your potential customers need to perceive your offering as exceedingly valuable to make the jump.
So, offering something very similar to established brands is a bad marketing strategy. Unfortunately, being as different from your competitors as possible is equally bad.
Behavioral economics, the branch of economics that integrates psychology to understand how consumers make decisions in the real world, has found out that people are not good at making purchase decisions of offerings across categories – i.e. people find it hard to compare things that are not easily comparable.
“Most people don’t know what they want unless they see it in context.” – Dan Ariely
In his book Predictably Irrational, behavioral economist Dan Ariely explains this phenomenon through an analogy. Tourists find it hard to choose between a breakfast-included trip to Rome or Paris. However, if a third option is introduced to the list – a trip to Rome without breakfast, then people tend to choose the breakfast-included Rome trip more often than not. This is because comparing Rome and Paris is hard, but the breakfast-included Rome trip seems like great value compared to the alternative Rome trip.
Dan Ariely also shares the experience of restaurant consultant Gregg Rapp, who found that including high-priced entrées on the menu of a restaurant boosts their revenue even if no one buys them. These items become a relativity trap – they make the other items on the menu seem like a better deal.
This has important implications in the context of startups who are innovating and doing their best to differentiate themselves. Being different is crucial, but customers still need to be able to put your offering in a frame of reference they are familiar with. Otherwise, they wouldn’t be able to place you against other alternatives, which would prevent them to make a decision.
Because of this, when you are building the marketing strategy for your startup, you should consider very carefully how to present your offering. Your uniqueness and innovation should take the forefront of your sales message, but they should be put in a familiar frame of reference, otherwise, you risk making the decision-making process much more difficult for your customers.
Make sure to explicitly show how your product or service is offering considerably more value in comparison to the established solutions. Use feature and value comparisons to turn the offerings of your competitors into your relativity traps, and you will increase the chances of people adopting your product or service.