The stock market is a perfect example of an undifferentiated market.
If you want to buy 100 shares of IBM, you will buy it at the lowest
price. There may be 1,000 people ready to sell shares of IBM. All you
care about is who will charge the least. No characteristic of the
seller—how long he/she has held the shares, whether he/she cheats
on income tax or spouse, what his/her religion is—matters to you
when we don’t care whose product or brand we take (“They are all the
same”) or we don’t need to know anything about the seller. Thus we
would say that oranges in a supermarket amount to a commodity if they
all look alike and we don’t care to know the grower or the orchard.
But there are three things that could violate the assumption of
an undifferentiated market.
• First, the products may look different. In the case of oranges,
they may come in different sizes, shapes, colors, and tastes, and
with different prices. We can call this physical differentiation.
• Second, the products may bear different brand names. We call
this brand differentiation. Oranges carry brand names such as
Sunkist or Florida’s Best.
Third, the customer may have developed a satisfying relationship
with one of the suppliers. We call this relationship differentiation.
For example, although the brands are well known,
one company may have provided better and faster answers to
the customer’s questions.
Harvard’s Theodore Levitt threw down the gauntlet when he
said: “There is no such thing as a commodity. All goods and services
are differentiable.”28 He saw commodities as simply products
waiting for a redefinition. Frank Perdue, who produces one of the
most popular brands of chicken, would boast: “If you can differentiate
a dead chicken, you can differentiate anything.” No wonder
one professor tells his MBA class that any student who uses the word
“commodity” during a case discussion would be fined $1.
Yet some companies believe they can win through pure will
power. Some years ago, the runner-up razor blade manufacturer in
Brazil challenged Gillette, the market leader. We asked the challenger
if his company offered the consumer a better razor blade. “No” was
the reply. “A lower price?” “No.” “A better package?” “No.” “A
clever advertising campaign?” “No.” “Better allowances to the
trade?” “No.” “Then how do you expect to take share away from
Gillette?” “Sheer determination” was the reply. Needless to say, the
offensive failed.
Tom Peters broadcasts the mantra: “Be distinct or extinct.”
But not every difference is distinctive. Establish “meaningful differences,
not better sameness.”
Differentiation can be achieved in many ways (see box).
Jack Trout’s book, Differentiate or Die, shows dozens of ways
companies have managed to produce a differentiated product, service,
experience, or image in the minds of customers.29
Greg Carpenter, Rashi Glazer, and Kent Nakamoto, don’t even
hold that the differentiation needs to be meaningful.30