Last week, as we all know, Tesco delivered another round of stonking profits, with a promise of yet more to come. During the same week, the Co-op admitted its supply chain needs modernising. And City analysts began to get the jitters as to the value of Sainsbury’s $3bn (£1.7m) investment in its supply chain.
When Sainsbury’s former supply chain director Martin White first presented proposals for the overhaul back in 2001, he told the board it would take seven years. But the board told him to do it in three. “Seven-in-three” became what is euphemistically known as a stretch- target. Sainsbury’s had no time to experiment. It just had to hope that everything – including fancy hi-tech “fulfilment factories” which Tesco had experimented with and abandoned – would come up trumps.
Meanwhile, thanks to its more incremental, lower-tech approach, Tesco was generating large amounts of cash which it reinvested in new stores and store refurbishments – investments that customers notice directly and which generate extra sales and market share. Sainsbury’s now faces a sickening prospect: of admitting it invested billions in a massive white elephant while falling dangerously behind elsewhere in the business.
But what about Tesco? How has it made mincemeat of its rival? On every front it seems – customer focus, innovation, marketing strategy, staff motivation, supply chain – Tesco seems to have performed better than the former market leader. Please note: not different, but better.
Now there’s a new book out elevating this approach to a new theory. Forget about differentiation, it says, the secret of success is to be “simply better”.
Today’s conventional wisdom goes something like this. Most markets are mature. In these markets brands are forever bugged by fast followers and product parity, to the extent that they can no longer differentiate on the basics, which have become mere “table stakes” of competition. Brands therefore need to differentiate themselves by offering something that helps them stand out: a “unique selling proposition” (USP), emotional added value, or a change to the rules of the game. This added value is what makes brands successful.
It’s all very logical and convincing but simply not true, argue marketing professors Paddy Barwise and SeÃÂ¡n Meehan in Simply Better. If you look at the reality of customer satisfaction, customer service and customer dissatisfaction, most companies don’t deliver the basics very well at all, they point out. There’s enormous room to improve upon the so-called “basics”. And that’s what customers want when they buy: not differences but basics.
Companies such as Orange (in its early days), Tesco and Toyota didn’t succeed because they tried to be different. They succeeded because they tried to be better. “Performance on the basics can vary enough between competitors to dominate all other sources of differentiation”, write Barwise and Meehan. Yes, customers see companies that excel at basics as different, “but different as in simply better, not as in unique or different for the sake of being different”. Uniqueness is “a myth”.
Marketers’ obsession with differentiation is perfectly understandable. When Brand A faces Brand B in the market, as far as the brand manager is concerned the customer’s choice is an all-or-nothing affair. If the customer buys our brand, we get 100 per cent of the available revenue. If he buys the other brand, the other brand gets 100 per cent. Survival and success therefore depends on our ability to tip the customer’s choice in our favour. Hence the obsession with differentiation.
But as Barwise observes “most customers are much less interested in our brands than we are. Suppliers and buyers live in different worlds”. Customers don’t see choice in an all-or-nothing way at all. There are many competing brands to choose from, and they all do a pretty good job. So the risk involved in choosing A versus B is pretty marginal. What the customer looks for is the product or service that will best meet his needs. Which is what defines categories: different bundles of needs.
Thus Toyota’s advertising, car design or brand image are hardly outstanding. But its growing reputation for basics such as quality, reliability and value means its sales are advancing relentlessly across the globe.
Likewise with Tesco. Price. Convenience. Availability. Quality. Service. It has focused on doing the basics ever better, not on being different. Chief executive Terry Leahy recently told the Marketing Society that Tesco originally tried to copy everything Sainsbury’s was doing. Then it decided it could do better.
Or take Orange. It became celebrated for its outstanding advertising, but as Barwise and Meehan show, it was basics like network coverage and fairer contracts that put it ahead of rival One 2 One (now T-Mobile).
If Barwise and Meehan are right, what are the implications? The biggest implication is that many companies waste vast amounts of time, money and energy trying to differentiate themselves when they should be investing in straightforward customer focus and improved value. “There is a significant mis-allocation of resources”, says Barwise. Being “Simply Better” is the hardest thing in the world: it’s much more fun chasing after a rainbow of differentiation than accepting the grind of day-to-day operational improvement.
A second implication is that marketing departments need to change their role. Instead of obsessing about the perceived or real differences between brands, they should focus on overall category dis-satisfiers: where every brand is falling down in some way or another. Car brand Daewoo didn’t last the course in the UK thanks to trouble back home. But don’t forget, back in 1995 it created the most successful new car launch in history by focusing on the customer dissatisfaction with the overall car buying experience.
In addition, marketers should continue to focus on distinctive communications, because when it comes to communication being different is important. It helps create cut-through. What marketers should not do is demand that the rest of the organisation create some different value proposition simply as a hook to hang the advertising on. Advertising a simply better company is more difficult, notes Barwise, because being better is less newsworthy than being different. It’s no accident that the theory of differentiation originally came from admen like Rosser Reeves (unique selling propositions) and Rees and Trout (positioning).
Simply Better has its drawbacks. It lends itself to tautology. (If a company is doing well then it must be Simply Better). You could say that some of examples cheat a tad. Yes, Orange, Tesco and Toyota did execute well. But they were also pioneers of new technologies and/or business models. And it’s impossible to put the secrets of operational success into words: just try explaining to a friend how to ride a bicycle.
But the core message remains. Differentiation does not build brands. Delivering outstanding value does.
Alan Mitchell, firstname.lastname@example.org
Simply Better, Patrick Barwise and SeÃÂ¡n Meehan, Harvard Business School Press.