Why being different is the best way to win

Since when was running with the herd good for a company's performance? It's all about being unique.

by Alastair Dryburgh
Last Updated: 09 Oct 2013

We're number two - we try harder. So went the old slogan from car hire firm Avis. Memorable marketing, but is it any way to run a business? Avis has been trying harder for as long as I can remember (and that's a long time now), but it's still only number two.

The problem with companies like Avis - across a diverse range of markets - is that they just aren't different enough. The days when it was possible to thrive simply by doing the same thing as the competition, only a little bit better, are long gone. Distinctiveness is now the name of the game.

So, if you want to escape a lifetime of trying ever harder for only average rewards, you'll have to come up with something really different to offer your customers. To this end, MT has gathered together a few examples of Contrarian Champions whose example we can learn from - companies that have deliberately separated themselves from the pack - and outperformed their rivals' vanilla offerings as a result.

Especially in times of economic hardship, it seems, being different can make all the difference. Just look at the winner of the latest MT Britain's Most Admired Companies Awards: BSkyB. Here's a company that is most assuredly not part of the regular media pack, and yet it has shown a clean pair of heels to its rivals - in terms of both commerce and its reputation - over the past 18 months.

So how do you create the right kind of difference, the smart, innovative strategies that lead to the sunlit uplands of success? The techniques used to generate difference by our contrarian champions can be summarised as follows: one, focus on the customer; two, use the ideas of Michael Porter (even if you don't read his books; and three, steal.

Customer focus is important, because it can help you to see beyond industry orthodoxy and understand why people buy from you rather than go somewhere else. It requires a different mindset and the ability to cast aside those cherished, but often erroneous, shibboleths about what can and cannot be done, that all businesses create for themselves.

Stand back. Stop thinking like the operator and start thinking like a customer. Better, talk to real customers. Or, better still, to real non-customers. What do they want? What is missing for them?

Customer focus is important all the time, and is one of the main advantages that small firms enjoy over their apparently stronger and more profitable larger rivals. In good economic times, it's almost inevitable that, for big companies, the needs of customers will drop down the list of corporate priorities, to some degree. This creates an opportunity for small firms with a distinctive customer offering to move in and clean up.

Knowing your customers is especially useful at times of abrupt and unexpected change - a recession, for example. Having a strong sense of why people buy from you as well as what they buy can help you to avoid damaging knee-jerk responses. Is everyone else in your sector rushing downmarket in anticipation of a boom in demand for cut-price 'value' offerings? If you stick it out at the top of the market, you might be able to grab for yourself a big chunk of the tasty high-margin business that remains.

Harvard professor Michael Porter is among the world's leading thinkers on competitive strategy. He has identified one of the other great strengths of being different - that it promotes strategic clarity. If you are doing something different from what everyone else is up to, chances are you've put some real thought into developing that strategy, and it is thus more likely to be the right one for you.

Porter goes on to say that to be successful, you need to operate one of three basic strategies. You can differentiate, offering a superior product for a higher price (Reckitt); you can be a niche player, more perfectly matched to your segment of the market (Wetherspoon's); or you can have the lowest costs, so that you can make money at prices lower than anyone else can stand (Ryanair).

He also crucially points out what to avoid - being stuck in the middle. You can't do a bit of one thing and a bit of another. Adopt one strategy, advises Porter, and implement it wholeheartedly.

As for stealing, it seems an unlikely way to generate difference, but appropriating ideas from other firms and/or countries is a time-honoured way of coming up with a winning formula. Microsoft didn't invent the graphical user interface but has done rather well out of Windows, all the same. Which models, proved by other companies or in other industries, could you steal?

These are the techniques for becoming distinctively different. But there's more. To make use of the techniques, you need three virtues: a willingness to think logically and act consistently; confidence; and a readiness to be unpopular

Logic enables better, more flexible thought. Do you really need a shop or a wholesaler when you can sell direct to customers online? Do airline passengers need paper tickets when they have booked a seat and their passport proves who they are?

Having identified your points of difference, you then need the confidence to break away from the herd. It can be hard to take a stand and do the opposite of what rivals are doing, and there will always be 'experts' who tell you why you are wrong to try to do so. But if you don't, you'll never be anything more than a 'me too' business.

And be prepared to be unpopular with your peers and competitors. By eschewing the party line, you are effectively telling them that you think their strategies are rubbish. That's likely to make you enemies, and it's naturally hard to deal with the dislike of our peers, even if that is motivated by jealousy. Try to ignore it, and concentrate instead on the good things your customers will, you hope, be saying about you. Take the attacks as proof that you have, in fact, become distinctively different.

Finally, a word of comfort for those about to embark on this lonely if potentially lucrative road. Difference may be a lot easier to achieve than you think. None of our champions (see panels) is doing anything particularly outrageous or off-the-wall. Risky, cutting-edge IT plays at most a peripheral role; Web 2.0 hardly comes into it at all. Rather, they are companies that have looked to their strengths instead of seeking safety in numbers, and have applied common sense and careful thought to succeed by doing something different. If they can do it, so can you. It has to be better than a lifetime of struggling to stay number two.

RYANAIR SWEARS BY LOW-COST MANTRA

Ryanair clearly subscribes to the view that all publicity is good publicity. With his colourful language and willingness to pick a fight, CEO Michael O'Leary is one of the best-known, if not best-loved, figures on the business scene. But look behind the public antics and Ryanair is the very opposite of its CEO's hot-headed public persona. What you see is the systematic, consistent, ruthless application of a simple and coherent business strategy.

It's called cost leadership. Have the lowest costs in your industry, and pull prices down to the point where only you can make money. The key is consistency. Everything is determined by the need to be lowest-cost: the airports it operates from, flying only one type of plane, and pioneering online booking, dynamic pricing and ticketless travel all work towards that single end.

It's a highly successful model - in an industry ravaged by overcapacity, huge fixed costs and falling demand, Ryanair remains one of the most profitable airlines in the world. But O'Leary didn't invent the strategy. In the airline industry, it was pioneered by US carrier Southwest Airlines. Southwest's CEO Herb Kelleher relentlessly reminded his colleagues of the way to take any decision - just ask: 'Does this make us the cheapest way to fly?'

You can even trace the model back to Henry Ford, who at the start of the 20th century realised that if you organise for dramatically lower costs, you can create whole new markets in the process.

A word of warning: if you're going to adopt a cost leadership approach, it's vital to communicate the need for the consistent application of the basic guiding principle. Which is why O'Leary's public rants are probably much less random than they seem.

JD WETHERSPOON KEEPS PLEASING THE PUNTERS

In a pub sector dominated by declining trade, pub closures and PE-backed pub firms drowning under mountains of debt, JD Wetherspoon stands out. From its humble one-pub beginnings in 1979, it now has more than 700 outlets and is looking to add another 250 over the next five years. While rivals struggle to service crippling debt, it has a surplus of £250m to invest.

The principles of founder Tim Martin are simple: cleanliness, a range of good-value booze and cheap 'n' cheerful food (99p a pint, £2.99 for cottage pie and chips). With no music, the emphasis is on the pub simply as a place where customers can enjoy a good chat over a beer and a bite to eat.

In 1979, this was radical - the industry then had many features of a monopoly. The number of pubs was limited by the reluctance of local authorities to grant new licences, and most pubs were owned by breweries that used them as outlets for their beer. Nobody worried much about what the ordinary drinker thought.

Wetherspoon's sharp focus on the customer remains the exception. Brewers may have had to give up their pubs now, but in many cases they've been replaced as owners by financiers with even less interest in the wishes of the punter. These absentee landlords care much more about their 'leveraged property plays' than whether the pubs they own are nice places to go for a drink.

Customer focus led to other innovations. Wetherspoon's pioneered non-smoking pubs. To break the stranglehold of large pub firms over licensed premises, it spearheaded the conversion of shops and other premises to pubs.

What's remarkable about Wetherspoon's strategy is how unremarkable it is. One man, applying simple principles most drinkers would agree with, outperforms large groups that have been running pubs for decades. Give that man a pint.

RECKITT BENCKISER KEEPS ITS SHINE

Last year was a horrible one for packaged-goods firms. Procter & Gamble reported profits for the second quarter down 18%, while for Unilever it was a 17% fall. There was, however, an interesting exception. Reckitt Benckiser reported a 14% increase in profits for the second quarter compared with the previous year, and for several years has been growing substantially faster than either P&G or Unilever.

What is Reckitt's secret? It may have something to do with pursuing a strategy the direct opposite of that of most of its competitors.

Reckitt increased spending on marketing by 25% over the past year, while most rivals were cutting back as fast as they could. While the FMCG herd rushed to introduce cheaper 'value' ranges of basic products, Reckitt held its nerve and continued to invest in the premium market - the latest version of its Finish dishwasher detergent, Quantum, is a very high-end product costing twice as much as bargain rivals. Says Reckitt's CEO, Bart Becht: 'We've proved that, in a downturn, consumers don't walk away from better products.' More than a few of his rivals must now wish they had shared his confidence.

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