Marketing success through differentiation - of anything.pdf

7/30/2019 Marketing success through differentiation - of anything.pdf

1/10

8

M arketing successthroughdifferentiation-of anyth ing

Any product oi service can hedifferentiated, eventhe comm odity that seemsto differ from competitors'offerings only in price

Theodore Levitt

On television we seeproduct differentiation allthe time, whether thesubject of the commercialis a distinguishablegood like an automobileor an indistinguishablegood like laundry deter-gent. These are packagedproducts. How does themarketer differentiate aso-called commodity likeisopropyl alcohol, stripsteel, commercial bankservices, or even legalcounsel? The authordescribes the attributesof products that give themarketer opportunity towin the customer fromthe competition and, hav-ing won him, to keep him.Finally, the author de-scribes the alert, imagina-tive state of mind thatcharacterizes good man-agement of productdifferentiation. "The wayin which the manageroperates becomes anextension of productdifferentiation," he says.Mr. Levitt is the EdwardW. Carter Professor ofBusiness Administration atthe Harvard Business.School and head of themarketing area of instruc-tion there. His articles in

HBR, which numbernearly two dozen, includethe well-known "Market-ing Myopia" (publishedin i960 and reprintedas an HBR Classic inSeptember-October 1975)and "Marketing WhenThings Change" (Novem-ber-December 1977). Hismost recent book isMarketing foi BusinessGrowth (McGraw-Hill,1974)-

There is no such thing as a commodity. All goodand services are diflferentiable. Though the usuapresumption is that this is more true of consumergoods than of industrial goods and services, theopposite is the actual case.In the marketplace, differentiation is everywhereEverybo dy-producer, fabricator, seller, broker, agentmerchanttries constantly to distinguish his offering from all others. This is true even of those whoproduce and deal in primary metals, grains, chemicals, plastics, and money.Fabricators of consum er and in dustrial goods seekcompetitive distinction via product featuressomevisually or measurably identifiable, some cosmetically implied, and some rhetorically claimed by reference to real or suggested hidden attributes thapromise results or values different from those ofcompetitors' products.So too with consumer and industrial serviceswhat I call, to be accurate, "intangibles." On thecommodities exchanges, for example, dealers inmetals, grains, and pork bellies trade in totally undifferentiated generic products. But what they "sell" isthe claimed distinction of their executionthe efficiency of their transactions in thir clients' behalftheir responsiveness to inquiries, the clarity andspeed of their confirmations, and the like. In shortthe offered product is differentiated, though thegeneric product is identical.When the generic product is undifferentiated, theoffered product makes the difference in getting customers and the delivered product in keeping themWhen the knowledgeable senior partner of a wellknown Chicago brokerage firm appeared at a NewYork City bank in a tight-fitting, lime green polyester suit and Gucci shoes to solicit business in financial instrum ent futures, the outcome was predictably


2/10

84 Harvard Business Review January-February 1980

poor. The unintended offering implied by his sar-torial appearance contradicted the intended offeringof his carefully prepared presentation. No wonderthat Thomas Watson the elder insisted so uncom-promisingly that his salesmen be attired in theirfamous IBM "uniforms." While clothes may notmake the man, they may help make the sale.The usual presumption about so-called undiffer-entiated commodities is that they are exceedinglyprice sensitive. A fractionally lower price gets thebusiness. That is seldom true except in the imaginedworld of economics textbooks. In the actual worldof markets, nothing is exempt from other considera-tions, even when price competition rages.During periods of sustained surplus, excess capac-ity, and unrelieved price war, when the attentionof all seems riveted on nothing save price, it is pre-cisely because price is visible and measurable, andpotentially devastating in its effects, that price de-flects attentio n from th e possibilities of extrica tingthe product from ravaging price competition. Thesepossibilities, even in the short run, are not confinedsimply to nonprice competition, such as harder per-sonal selling, intensified advertising, or what's loose-ly called more or better "services."To see fully what these possibilities are, it is use-ful first to examine what exactly a product is.

W hat's a product?Products are almost always combinations of thetangible and the intangible. An automobile is notsimply a machine for movement visibly or measur-ably differentiated by design, size, color, options,horsepower, or miles per gallon. It is also a complexsymbol denoting status, taste, rank, achievement,aspiration, and (these days) being "smart"that is,buying fuel economy rather than display. But thecustomer buys even more than these attributes. Theenormous efforts of the auto manufacturers to cutthe time between placement and delivery of anorder and to select, train, supervise, and motivatetheir dealerships suggest that these too are integralparts of the products people buy and are thereforeways by which products may be differentiated.In the same way, a computer is not simply a ma-chine for data storage and processing; it is also anoperating system with special software protocols foruse and promises of ma intenan ce and repair. Carbon

fibers are chemical additives that enhance flexuousstiffness, reduce weight, fight fatigue and corrosion,and cut fabrication costs when combined with cer-tain other m aterials. But carbon fibers have no v aluefor an inexperienced user without the design andapplications help that only the experienced sellercan provide.In thousand-page contract proposals by govern-ment contractors or five-page consulting proposalsto industrial clients, the product is a promise whosecommercial substance resides as much in the pro-poser's carefully curried reputation (or "image") andin the proposal's meticulous packaging as it does inits physical content.When the substantive content of the products ofcompeting vendors are scarcely differentiable, salespower shifts to differentiating distinctions by whichbuyers may be infiuenced. In this regard, there isscant substantive difference among all that 's done byMorgan Stanley & Co., Lockheed, McKinsey &. Co.,and Revlon. Though each will vigorously proclaimcommanding generic distinctions vis-a-vis competi-tors, each is profoundly preoccupied with packag-ingthat is, with representing itself as unique. And,indeed, each may be unique, but its uniqueness re-sides most powerfully in things that transcend itsgeneric offerings.Take investment banking. Underwriters promisemoney to issuers and suggest similar promises tobuyers. But how these promises are packaged pro-foundly influences both issuers and buyers. Con-sider this quotation from a close observer of theindustry: "One eminent [U.S. investment banking]house has entrances on two streets, with differentstationery printed for each entrance. One door isintended to be more exclusive than the other, anda visitor supposedly can tell the firm's assessmentof his importance by the entrance indicated on theletterhead of the stationery h e receives." ^ Obviously,the distinctions being m ade are selling devices basedon the assumption that VIP treatment of certainvisitors at reception will persuade them of VIP re-sults later in actuality.To the potential buyer, a product is a complexcluster of value satisfactions. The generic thing isnot itself the product; it is merely, as in poker, tablestakesthe minimum that is necessary at the outsetto give its producer a chance to play the game. Itis the playing that gets the results, and in businessthis means getting and keeping customers.A customer attaches value to a product in propor-tion to its perceived ability to help solve his prob-lems or meet his needs. All else is derivative. As aspecialist in industrial marketing has expressed it.


3/10

Marketing differentiation 8

"The 'pro du ct'. .. is the total package of benefitsthe customer receives when he buys." ^Consider the pragmatism of the Detroit automanufacturers in buying sheet steel. Detroit buys toexceedingly tight technical specifications, but itspecifies much more than the steel itself. It also de-man ds certain delivery co nditions and flexibilities,price and payment conditions, and reordering re-sponsiveness. From year to year, the Detroit com-panies shift the proportions of steel they buy fromtheir various suppliers on the basis of elaborate grad-ing systems that measure each supplier's perfor-mance on the specified conditions, including thekind and quality of unsolicited help on such mattersas new materials ideas, ideas for parts redesign, andeven purchasing procedures.

Clearly, Detroit buys a bundle of value satisfac-tions of which the generic product is only a smallportion. If, say, the delivery conditions and flexibil-ities are no t fulfilledor if they are fulfilled errat-ically, grudgingly, or only partiallythe customeris not getting the product he expects. If, moreover,one supplier is more effectively active with newfacilitating ideas, his "product" is better than hiscompetitors'. Detroit sees with supreme clarity thatNo. 302, 72-inch, hot-rolled strip carbon steel isnot a comm odity. It is a measurably differentiatedproduct.The customer never just buys the "generic" prod-uct like steel, or wheat, or subassemblies, or invest-ment banking, or aspirin, or engineering consult-ancy, or golf balls, or industrial maintenance, ornew sprint, or cosmetics, or even 99% pure isopropylalcohol. He buys something that transcends thesedesignationsand what that "something" is helpsdetermine from whom he'll buy, what he'll pay, andwhether, in the view of the seller, he's "loyal" or"fickle."What that something is in its customer-gettingand customer-satisfying entirety can be managed.To see how it can be managed, it is helpful to lookat th e process graphically. Exhibit I (next page) doesthis by suggesting that a product consists of a rangeof possibilities, which I shall now describe.

The generic productThe fundamental, but rudimentary, substantive"thing" that's the table stakes of businesswhat'sneeded for a chance to play the game of marketparticipationis the generic product. It is, for thesteel producer, the steel itselfor, in the Detroit ex-ample. No. 302, 72-inch, hot-rolled strip, or some-

body's technical equivalent. For a bank, it's loanablfunds. For a realtor, it's for-sale properties. For aretailer, it's a store with a certain mix of vendablesFor a lawyer, it's having passed the bar exam.Not all generic products are the same. Havinpassed the New York bar exam is not the same ahaving passed the Colorado exam. Because of slighdifferences among automobile company manufacturing processes, one supplier's "302" may, in factbe "better" than another's. One m ill's 302 may takcertain coatings more easily or quickly than another's. One supplier may fill orders from a singlmill, and an other from several. In th e latter case, thsheen or hue of the generic product may vary slightly from mill to mill, which makes considerabldifference in the case of stainless steel that is use

for decorative trim.In most cases, these differences are not salienMore important are the characteristics of the expected components of the product.

The expected productIn Exhibit 1 the expected product is everything within the outer and inner green circles, including thgeneric product. It represents the customer's m inim apurchase conditions. What, for example, does thcustomer consider absolutely essential in strip steel1. Delivery: At what plants? When? Not just onwhat day, but at what hours of each day, so as tominimize valuable space for backup stock and toreduce inventory costs? The supplier has to be "logistically even" with the buyer. The proper quantityandflexibilitythat s, quick and hassle-free responsiveness to snags in delivery quantities and timesare also expected. Finally, preferential treatmenmay be specified in case of shortages.2. Terms: Specific prices for specific quantities fospecific lengths of time. In the case of a change inlist prices, the terms contain negotiable parametersperhaps linked to such indexes as moving price averages of scrap and other steel-making ingredientover specified periods. The terms may also be reflected in discount structures related to the promptness of paym ent and add-on provisions for extendedpayment periods.1. Samuel L. Hayes, III , "Investment Banking: Power Structure in Flux,"HBR March-April 1971, p. 136.2. E. Raymond Corey, "Key Options in Market Selection and Product Planing," HBR September-October i97Sr P- ii9- For an elaboration, see hisIndust r ia l Market ing : Cases and Concepts (Englewood Cliffs, N.J.:Prentice-Hall, 1976I, pp. 4O-4r; also, see Benson P. Shapiro, "MakingMoney Through Marketing," HBR July-August 1979, p. 136.


4/10


Exhibit IThe total product concept

The gen eric productThe expected product

.The augmented productThe potential product


5/10


3. Support efforts: Depending on what the usesof the product are, the purchaser may expect specialapplications advice and support.4. New ideas: A normal expectation may includesuppliers' ideas and suggestions for more efficientand cost-reducing ways of using th e generic produc tin its various intended forms, such as fabrication,coating, and fastening.All this may he well known, hut the underlyingprinciples encompass much more. The failure tofulfill certain more suhtle expectations may reflectunfavorably on the generic product. A shabbybrokerage office may cost a realtor access to cus-tomers for his for-sale properties. Even though thelawyer performed brilliantly in the bar exam andoccupies offices of prudential elegance, his person-ality may clash with a potential client's. A manu-facturer's competitively priced machine tools mighthave the most sophisticated of numerical controlstucked tightly hehind an impressive panel, but cer-tain customers may refuse to buy because outputtolerances are more precise than necessary or usable.The customer may actually expect and want less.The generic product can be sold only if the cus-tomer's wider expectations are met. Different meansmay be employed to meet those expectations. Hencedifferentiation follows expectation.

The augmented productDifferentiation is not limited to giving the customerwha t he expects. What he expects may be augmentedby things he has never thought about. W hen a com-puter manufacturer implants a diagnostic modulethat automatically locates the source of failure orbreakdown inside his equipment (as some now do),he has taken the product beyond what was requiredor expected by the buyer. It has become an aug-mented product. When a securities brokerage firmincludes with its customers' monthly statements acurrent balance sheet for each customer and ananalysis of sources and disposition of funds, thatfirm has augmented its product beyond what wasrequired or expected by the buyer. When a manu-facturer of health and laeauty aids offers warehousemanagement advice and training programs for theemployees of its distributors, that company too hasaugmented its product beyond what was requiredor expected by the buyer.These voluntary or unprompted "augmentations"to the expected product are shown in Exhibit 1 by theirregular band that surrounds the expected product.

In every case, the supplier has exceeded the norm aexpectations of the huyer. In the case of our steelexample, it can be done by developing better waysof fabricating and coa ting the produc t or by reducingthickness to cut weight. The seller may provideother unexpected but moderately helpful aids, suchas new delivery scheduling ideas, more "interestin g"terms, different ways of delivering batches so as toreduce the buyer's handling problems and costs, andinvoicing systems tha t give the huyer m ore information about the use patterns of the generic producby his various plants, divisions, or brands.Not all customers for all products and under alcircumstances, however, can be attracted by an everexpanding bundle of differentiating value satisfac-tions. Some customers may prefer lower prices toproduct augmentation. Some cannot use the extraservices offered. Steel users, for instance, once de-pend ent on mills for applications help and engineering support, gradually grew sufficiently sophisticatedto free themselves of that dependencea freedomwhich, incidentally, led to the rapid growth of independent steel distribution centers in competitionwith the mills.(Now the centers, which have distinguished themselves from the mills by faster delivery on standardgrades and sizes, a wider item mix, and ability tohandle small orders, have augmented their producby doing more minor fabricating and adding certainspecialty steel application services.)As a rule, the more a seller expands the markeby teaching and helping customers to use his product, the more vulnerable he becomes to losing themWhen a customer no longer needs help, he gainsthe flexibility to shop for things he values moresuch as price.At this point, it makes sense to embark on a systematic program of customer-benefiting, and therefore customer-keeping, product augmentation. Theseller should also, of course, focus on cost and pricereduction. And that's the irony of product maturityprecisely when price competition heightens, andtherefore when cost reduction becomes more important, is when the seller is also likely to benefiby incurring the additional costs of new producaugmentation.The augmented product is a condition of a maturemarket or of relatively experienced or sophisticatedcustomers. Not that they could not benefit from orwould not respond to extra services; but when acustomer knows or thinks he knows everything andcan do anything, the seller must test that assumption lest he be condemned to the purgatory of pricecompetition alone. The best way to test the custom


6/10


er's assumption that he no longer needs or wantsall or any part of the augmented product is to con-sider what's possible to offer that customer.

The potential productEverything that might be done to attract and holdcustomers is what can be called the potential prod-uct. For the steel user, the offering may include:> Suggested technical changes, such as redesignof a component to reduce weight, add strength ordurability, cut lateral flex, improve adhesion anddesirability of coatings, or enhance safety.> Market research findings regarding customers'attitudes toward, and their problems with, the vari-ous alternatives to steel (plastics and aluminum, forexample). "'> New methods and technologies for shaping,forming, and fastening steel to steel, steel to plastics,and the like.> New ideas for lubricants, noise-reducing ma-terials, buffers, and gaskets.> Tested proposals for easier, faster, and cheaperassembly systems.> New ideas for varying product characteristicsfor various user segments, such as commercial fieets,taxi fleets, and rental companies, each of which hasits own buying criteria.

> Concrete, tested suggestions for combining ma-terials like steel and fiberglass.Only the budget and the imagination limit thepossibilities. But what the budget is and ought tobe is often a function of what is necessary to beingcompetitive in all the dimensions of the potentialproduct.Things will vary with conditionseconomic con-ditions and competitive conditions. Competitionmay be a function not simply of what other steelsuppliers offer but also of what suppliers of sub-stitute materials offer. Reordering responsiveness isnot nearly as important to buyers in good times asin badexcept when a competitor strategically usesthe good times (that is, when demand is high andsupply short) to accommodate a large prospectivecustomer in order to get a foot in the door.Economic conditions, business strategies, custom-ers' wishes, competitive conditions, and much morecan determine what sensibly defines the product.Nor are the ingredients of the described classifica-tions fixed. What's "augmented" for one customermay be "expected" by another; what's "augmented"under one circumstance may be "potential" in an-

other; part of what's "generic" in periods of shortsupply may be "expected" in periods of oversupply.Aswith most things in business, noth ing is simple,static, or explained very reliably by textbook tax-onomies. One thing is certain: there is no suchthing as a commodityor, at least, from a competi-tive point of view, there need not be. Everything isdifferentiable, and, in fact, usually is differentiated.(See the ruled insert on next page.)

Role of managementThe way a company manages its marketing can be-come the most powerful form of differentiation.Indeed, that may be how some companies in thesame industry differ most from one another.Brand management and product management aremarketing tools that have demonstrable advantagesover catchall, functional modes of managem ent. Th esame is true of marke t m anagem ent, a system w idelyemployed when a particular tangible or intangibleproduct is used in many different industries. Puttingsomebody in charge of a product that's used thesame way by a large segment of the market (as inthe case of packaged detergents sold through retailchannels) or putting somebody in charge of a mar-ket for a product that's used differently in differentindustries (as in the case of isopropyl alcohol solddirectly to manufacturers or indirectly to them viadistributors) clearly focuses attention, responsibility,and effort. Companies that organize their marketingthis way generally have a clear competitive ad-vantage.The list of high ly differentiated consu mer prod-ucts that not long ago were sold as undifferentiatedor minimally differentiated commodities is long:coffee, soap. Hour, beer, salt, oa tmeal, pickles , frank-furters, bananas, chickens, pineapples, and manymore. Among consumer intangibles, in recent yearsbrand or vendor differentiation has intensified inbanking, insurance of all kinds, credit cards, stockbrokerage, travel agencies, beauty parlors, entertain-ment parks, and small-loan companies. Among con-sumer hybrids, the same thing has occurred: themerestaurants, opticians, food retailers, and specialtyretailers are burgeoning in a variety of categories-jewelry, sporting goods, books, health and beautyaids, pants and jeans, musical records and cassettes,auto supplies, and home improvement centers.


7/10


In each of these cases, especially that of consumertangibles, the presumption among the less informedis that their competitive distinction resides largelyin packaging and advertising. Even substantive dif-ferences in the generic products are thought to beso slight that what really counts is the ads and thepackages.This presumption is palpably wrong. It is notsimply the h eavy advertising or the clever packagingthat accounts for the preeminence of so many Gen-eral Foods and Procter & Gamble products. Nor isit their superior generic products that explain thesuccesses of IBM, Xerox, ITT, and Texas Instru-ments. Their real distinction lies in how they man-ageespecially, in the cases of P&.G, General Foods,IBM, and Xerox, in how they manage marketing.The amount of careful analysis, control, and fieldwork that characterizes their management of mar-keting is masked by the visibility of their advertisingor presumed generic product uniqueness.The branded food products companies advertiseheavily, and they work as hard and as closely withtheir wholesale and retail distributors as do the autocompanies. Indeed, often these food companies workwith distributors even harder because their distribu-tors handle m any com peting brands and the distribu-tion channels are longer and more complex. Mostgrocery stores, of course, handle a number of moreor less competing brands of the same generic (orfunctionally undifferentiated) product. There aremore than two dozen national brands of powderedlaundry detergent. The stores get them from a super-market chain warehouse or from the warehouse ofa cooperative wholesaler, a voluntary wholesaler, oran independent wholesaler. Each of these ware-houses generally carries a full line of competingbrands.Though the national brands try via advertisingand promotion to create consumer "pull," they alsotry to create retailer and wholesaler "pu sh." At retailthey regularly seek more advantageous shelf spaceand more advertising support from the retailer. Atwholesale they do other things. Some years agoGeneral Foods did a massive study of materialshandling in distribution warehouses. Then thecompany made its results and recommendationsavailable to the trade through a crew of specialistscarefully trained to help implement those recom-mendations. The object, obviously, was to curryfavor with the distributive trades for General Foodsproducts.The company did something similar for retailers:it undertook a major study of retail space profitabilityand then offered supermarket owners the oppor-

The complexity of ageneric productDurum is a variety of whea t pro-duced in rather small quantitiesand almost exclusively in threecounties in eastern NorthDakota. Its main use is in pasta.Farmers generally deliver thedurum in truckload quantities tocountry elevators, from which itis shipped to processors. Inrecent years, however, manylarge farm operations have builttheir own storage elevators.Using very large trailer trucks,they make direct shipments tothe elevators of large users.Thus they not only avoid middle-man storage discounts, but theyalso obtain access to premiumspaid by the purchasers for high-quality wheat.

Similarly, country elevatoroperators in the Great P lainshave increasingly organized totake advantage of unit-trainshipments to the Gulf Coast andthereby qualify for substantialrail tariff discounts. T hesearrangements affect the quanti-ties and schedules by whichcountry elevators prefer to buy

and take delivery from growers,which in turn affect how thegrowers manage their deliverycapabilities and schedules.The prices that elevator oper-ators and processors pay varysubstantially, even for identicalgrades of durum wheat. The ele-vator operators will pay pre-miums ab ove, or take discountsfrom, prices currently quoted orprices previously agreed to withfarmers, depending on theresults of protein and moisturetests ma de on each delivery.Wheat use rs, like Prince Spa-ghetti Company, make addi-tional tests for farina and glutencontent. Premiums and dis-counts for quality differences ina particular year have beenknown to vary from the futuresprices on commodity exchangesby amounts greater than thefutures price fluctuations them -selves during that year.

tunity to learn a new way of space-profitability ac-counting. By helping retailers manage their spacebetter. General Foods presumably would gain re-tailers' favor for its products in their merchandisingactivities.Another company, Pillsbury, devised a programto help convenience stores operate and competemore effectively. T he object was, of course, to obtainpreferential push treatment for Pillsbury productsin these stores.Similar examples abound in branded food mar-keting:n The form in which goods are deliveredpallets,dollies, bulkis often customized.D When Heinz sells, delivers, and packagesketchup to institutional purveyors who supply hos-pitals, restaurants, hotels, prisons, schools, and nurs-ing homes, it not only operates differently from theway it deals with cooperative w holesalers, but it alsoseeks to operate in some advantage-producing fash-ion different from the way Hunt Foods deals withthe same purveyors.D Some years ago th e Institution al Food ServiceDivision of General Foods provided elaborate them e-


8/10

90

Exhibit IIPresumed results of Impreved sales distribution

Industry and useAcetoneOther intermediatesAgribiochemicalCoatingsOtherTotalIf 50% had been sold at the premiumsIf 10% had bee n sold at the premiums

Millions ofpounds124

20318649

31 0

Harvard Business Review January-February 1980

Additional cash contributions of incremental price points by price incrementsper pound$.01$124,000

20,00031,00086,00049,000

$310,000$155,000$ 31,000

$.02$248,000

40,00062,000

172,00098,000

$620,000$310,000$ 62,000

$.05$ 620,000

100,000155,000430,000245,000

$1,550,000$ 775,000$ 155,000

meal recipes for schools"safari" meals tha t includedsuch delectables as "groundnut soup Uganda" and"fish Mozambique." General Foods provided "dec-orations tohelp you go native" in the cafeteria, in-cluding travel posters, Congo face masks, pith hel-mets, lotus garlands, and paper monkeys.

Case of isopropanolFour of the companies I have mentioned before(General Foods, P&.G, IBM, Xerox) are organizedalong product or brand-management lines for theirmajor generic products. IBM and Xerox also havemarket managers and geographic managers. Whatdifferentiates them from others is how well theymanage marketing, not merely what they market.It is th e process, not just the product, that is differ-entiated.To see the importance of the process, let's con-sider the lost opportunities of a company lackingthe right process. Take thecase of a large manufac-turer of isopropyl alcohol, commonly called isopro-panol. It is a moderately simple, totally undiffer-entiated generic product chemically synthesized viaa well-known process from gas recovered in petro-leum refining. It comes in two grades: crude, whichis 9% water, and refined, which is i% water. In1970, 1.9 million pounds were produced in theUnited States. Of that amount, 43% was bought asa feed stock tomake acetone (principally a solvent),and most of the remainder was bought for use inchemicals, lacquers, and protective coatings.W ith the introduction of the new cumene process,isopropanol was no longer needed in the manu-facturing of acetone. Hence in 1970 isopropanol was

in vast oversupply. Prices were deeply depressed andexpected to remain so for some five years until de-mand caught up with supply. One of the largerisopropanol companies employed a substantial pro-portion of its output to make acetone. In 1970 thecompany sold 310 million pounds of both productsto the "merchant market"that is, directly to manu-facturers.Although the prevailing prices per pound for bothacetone and isopropanol were exceedingly low (aslow as $.04 for acetone and $.067 for isopropanol),later analysis of this producer's invoices showedwide variations around these prices for sales madeto different customers even on the same days. Twopossible conclusions follow: (1) not all buyers wereidentically informed about what, indeed, were the"prevailing" prices on each of those days, and (2)not all buyers were equally price sensitive.Analysis showed further that these price varia-tions tended to cluster by industry category andcustomer size but not by geographical location.Another breakdown of industry categories revealedstill other price segments: manufacturers of variouskinds of coatings exhibited different clusterings ofprices they had paid. Substantial differences inpricespaid also showed up between agricultural chemicalproducers and biochemical producers. A categorycalled "other" showed a great variety of price clus-terings.All this, however, is a matter of hindsight. Nosuch analysis was made at the time. Had the m arket-ing process been managed well, a product managerwould have known these facts. The revealed dif-ferences in invoice prices and price clusterings wouldhave led an intelligent and inquisitive product man-ager to ask:


9/10

Marketing difierentiation 91

1. Who are the least price-aware or price-sensitiveamong the industry users to whom we sell? What istheir size distribution? Exactly which co mpanies arethey?2. Who are the most and the least vendor-loyalthat is, who huys regularly from us, regardless ofpricefluctuations?Why? And who buys from us onlyoccasionally, largely on considerations of price?3. Who can use our applications help most? Wholeast?4. Who would respond most to our oflfer for help?5. Where and with whom could we selectivelyraise prices? Should we selectively hold prices?6. How should we communicate all this to thesales organization and employ it in managing thesales forces?Suppose that by astute management, the sales forcehad sold largely to the less informed or less price-sensitive indu stry sectors or customers. Suppose tha teach customer segment had yielded higher prices ofas little as $.ooi, $.002, or $.005 per pound. Whatwould have been the immediate cash contributionto the company? Exhibit II gives an answer.If only 10% of total sales had been made for onlyone-tenth of a penny more than they were, the pre-tax contribution would have risen $31,000. If 50%of sales had been raised by this minuscule amount,the yield would have been an extra $155,000; if50% had been raised by two-tenths of a penny, theyield would have b een $310,000 extra.Given the analysis of markets and users that Ioutlined, such increases seem to have been wellwithin reach. To get them, how much would ithave been worth to expand the market analysisfunction into an on-the-spot, on-line differentiatingactivity guiding the sales organization? Obviously,a lot.It is this and related kinds of attention to market-ing details that characterize the work of productmanagers and market managers. Among producersof generically undifferentiated productsparticu-larly of products sold as ingredients to industrialcustomersthe management of the marketing pro-cess can itself be a powerful differentiating device.This device is constantly and assiduously employedin the better-managed brahded, packaged consumergoods com panies.It is a matter of staying aware of exactly what'sgoing on in the market, of how people use, misuse,or modify their products, of how and where theybuy, of who makes buying decisions and how theseget modified, and the like. It is a matter of lookingcontinuously for gaps in market coverage that the

company can fill, of looking continuously at newways of influencing buyers to choose one's productinstead of a competitor's. In this unceasing effortof the manager, the way in which he operates becomes an extension of the idea of product differ-entiation itself.While differentiation is most readily apparent inbranded, packaged consumer goods, in the design,operating character, or composition of industrialgoods, or in the features or "service" intensity ofintang ible products, differentiation consists as pow-erfully in how one operates the business. In th e waythe marketing process is managed may reside theopportunity for many companies, especially thosethat offer generically undifferentiated products andservices, to escape the commodity

The management of demand. . . Along with bringingdemand under substantialcontro l , . . . [ tbe manage-ment of demand] pro-vides, in tbe aggregate, arelentless propagandaon behalf, of goods ingeneral. From earlymorning until late atnigbt, people are informedof tbe services rendered bygoodsof tbeir profoundindispensability. Everyfeature and facet of everyproduct baving been stud-ied for selling points,tbese are tben describedwitb talent, gravity andan aspect of profoundconcern as the sources ofbealtb, happiness, social

acbievement, or improvedcommunity s tanding.Even minor qualities ofunimportant commoditiesare enlarged upon with asolemnity wbich wouldnot be unbecoming in anannouncement of tbecombined return of Christand all the apostles. Moreimportant services, suchas the advantages ofwhiter laundry, are treatedwith proportionatelygreater gravity.Fromthe book The New lndusttial Stateby John Kenneth Galbraith,published by Houghton MifHinCompany, Boston. Copyright 1967, 1971, 1978by John Kenneth Calbraith.


10/10

Documents

Marketing success through differentiation - of anything.pdf