Why differentiation matters more than you might think

“My clients don’t care about all this marketing nonsense, they don’t want differentiation, they just want us to do a good job for a reasonable fee,” is the popular refrain that marketers often hear from their front-line partners in professional services firms.

On the other hand, any textbook on branding since Lord William Lever (he of Unilever fame) invented Sunlight Soap in 1884 seems to put great emphasis on differentiation as one of the most fundamental aspects of marketing and brand success. Perhaps the local shopkeepers of Wigan used to push the then plain Mr Lever out of the door asserting forcefully, “get thee hence, my customers just want soap that gets them clean, none of your fancy packaging and all that nonsense.”

Premium professional services and soap are obviously very different but without trivialising it the influence of branding and perceived differentiation are not so dissimilar and it’s worth standing back to appreciate just how important they might be.

USING OR CHOOSING?
The key to understanding the role of branding in professional services is first to appreciate that the imagined partner in the above example is almost certainly correct. He or she is talking about existing clients and on the whole once clients have made a choice about which lawyer / architect / banker / management consultant to engage (or soap to wash with) they do then focus almost exclusively on ‘good’ rather than ‘different’ ­– but when it comes to choosing who to engage that’s a totally different situation and differentiation suddenly becomes extremely important.

Economists will tell you that if all else is equal, customers/clients will choose the least expensive option ­– it makes sense intuitively as well, why pay over the odds for the same thing?

Before Mr Lever came along soap was sold by weight, cut from a large block and wrapped in plain paper. Presumably the pre-1884 soap shopper would peruse the local reputable shops and buy from the cheapest. What Lever discovered was that if good soap was first cut into small pieces, infused with delicate perfume, wrapped in attractive packaging and advertised in the local newspapers, then perfectly rational people were more than happy to pay more for it; lots more when the margin rather than the commodity cost was concerned.

This is an important detail as we’ll see later with Apple; when products or services are similarly expensive to produce, being able to charge more than the next person massively increases your profits. (For those unconvinced – consider a piece of soap/global audit that costs the owner of the business $100 to deliver to the customer. In the good old days, the shopkeeper/large accountancy firm might be able to sell that soap/global audit for $110 making a comfortable margin or profit of $10. Then along comes Mr Lever and sells a bar of Sunlight Soap for $130 ­– not so much more and still comfortably affordable. The thing is of course that Mr Lever hasn’t just made $20 more than his competitor, he’s made 200% more profits than them! Massive profits that he can invest back into making the brand even stronger or distributing to the Lever Brothers shareholders).

It’s important to remember that the soap still had to be the best soap – at least as far as the average ‘washer’ was concerned – these were savvy consumers, the middle classes, who knew their onions, so to speak. But beyond that, what Lever discovered was that subtle, intangible benefits could be added to the core ‘soap’ that helped the buyer perceive that by buying Sunlight soap they were making a smart choice.

AN INFORMED CHOICE
Back to the $1m new business pitch.

To see how brand differentiation works in professional services put yourself in the shoes of the sophisticated client sitting the other side of the table as they hear 4 incredibly well put together pitches for their business. Because they’ve done their homework they’ve narrowed the shortlist down to 4 firms who have a great track record in what they want done. Each firm presented a deceptively similar line up of highly talented individuals who could all obviously do the job well and when they got to the end and the fees, guess what? They were all proposing to charge $1m in fees (well $975k to $1,025k but as this was a really important issue for the client company CEO and because they could afford it the difference wasn’t even noticed).

So, who gets the job? Not the cheapest, because they were almost identically priced and anyway the small differences were nothing in the face of the importance of this task ­– the upside of getting it right and/or the downside of getting it wrong. The winning firm was the one that the clients ‘perceived’ to be better suited to the task. Based not on the fundamentally important criteria – being able to, say, design a beautiful, award winning 1000m iconic skyscraper in the middle of the desert that will stand up ­– because fundamentally important as it is, they can all do that.

So, the decision moves onto far less tangible but nonetheless critical perceptions that the client has about one firm vs. the next. What they’ll be like to work with, what their peers will think about their choice, whether they’ll be hungry to do their best work or rest on their laurels. All ultimately unknowable and somewhat intangible criteria but nonetheless the criteria upon which they award the $1m contract. Mr Lever would call it the brand.

IPHONE THEREFORE I AM
Fast forward from the North of England in 1884 to Silicon Valley in 2018.

It may be a lot more complicated than a bar of soap ­– although, given the benefits of improved hygiene on life chances in Victorian England, arguably less important ­– but the Apple iPhone is a brand that Lord Lever would appreciate.

It’s no news that people love the iPhone but what’s amazing is just how dominant Apple is – perhaps the most successful example of a brand creating perceived differentiation in a sophisticated and highly competitive market.

The latest iPhone X like the previous iPhones is an incredible piece of technology. But at the same time the Huawei Mate 10 Pro (no, I’d never heard of it either) is also an incredible piece of technology and I think you’d be hard pushed to find anything that the iPhone X does that the Mate 10 Pro doesn’t do equally well – things like make calls, send emails, stream YouTube, play Angry Birds, etc. Also, being the latest flagship model of each company they both have huge screens with fabulous definition and enough computing power to land on Mars.

But here’s the thing. Even though each sells similar numbers of devices, Apple makes around 80% of the entire profits of the global smartphone market whereas Huawei makes about 5% (and choosing Huawei was generous, because apart from Samsung they are the only other manufacturer who makes any profits at all).

Fun fact; in one quarter in 2016 Apple reportedly made 104% of the total market profits – possible only because everyone else added together made less than nothing that quarter.

The point of this is to shine a light on the value of perceived brand differentiation based on fairly intangible ideas in the minds of willing consumers, even in a market for highly tangible products like smartphones that can be literally pulled apart, tested, measured and demonstrated beyond any doubt to be ‘as good as’ the leading brand by whatever criteria you choose to focus on.

Apple may be many thousands of times more profitable than its competitors but as shown earlier they achieve that not by charging many thousands of times the price of others, just a few hundred dollars more per phone – a few hundred though that are pure profit vs. the competitors, who to sell any phones at all have to price them at about roughly what it costs to make them.

Apple make great products. What they’ve also created over recent years is a powerfully differentiated brand that sensible, rational people buy into and are willing to pay more for, even if the others, “do a good enough job at a reasonable price”.

START YESTERDAY
The challenge for CMOs of professional services firms is to persuade their executive team colleagues that in order to create meaningful brand differentiation that will give their teams a significant competitive advantage ‘tailwind’ in the kind of new business pitch scenario depicted above, they need to support a long-term sustainable branding strategy.

It can’t just be ‘turned on’ in the room ­– any more than Apple can begin to tell their story in the store. In the pitch/store you can remind them of that brand differentiation but the work seeding the perceptions of brand differentiation in the clients’ minds needs to be done way in advance, often many years in advance of that moment in order to call it in when it counts.


Ian Stephens

CEO and Founder of Principia, the world's most experienced branding and innovation consultancy for professional service firms.