In physics, the law of entropy tells us that without applying an external force, things will drift toward decline and disorder. The corollary in the competitive tech market is when a company fails to invest in innovation and differentiation, their products will drift into market decline. It is also true that over time, in a well-served, highly competitive space, every new feature from one vendor is immediately covered by all competitors, and differentiation only occurs at the fringes of buyer needs, so all products drift toward commodities. The dilemma is do nothing and drift toward competitive decline, or invest to remain on parity with competitors, and drift toward a commodity market.
Vendors need to go beyond pure product tech investment to avoid decline, and apply investment in other areas that matter to buyers. Ease of purchase and ease of doing business, unique services, attractive packaging, and a vibrant user community are all examples of areas to invest in differentiation.
Buyers need competitors to help them find differentiation that can support a purchase decision. I was recently shopping for a new band for my Apple Watch, and every vendor had tons of colors and styles. Some vendors were selling what looked like identical products for wildly different prices. In all likelihood, any choice would have been just fine, but I was so overwhelmed with the colors and styles and price points that I ended up in buyer’s paralysis. I simply gave up and decided to just keep the band I have. This same outcome happens in the enterprise tech market. Mature products have so many features and capabilities that each vendor’s pitch only adds to buyer confusion. When buyers are confronted by a dizzying array of features they sometimes just shut down. Paralysis sets in, and they may even choose to put the project on hold rather than make a murky decision. We all know that our number one competitor is ‘Do Nothing.'
Most tech vendors strive to innovate faster than anyone else, but it is critical that the innovations differentiate the vendor in a way that is mainstream for buyers’ needs, rather than edge cases. At some point, the current product is largely ‘complete.’ It solves the tech needs of mainstream buyers, and further differentiation has to be in the form of innovative services or packaging or pricing.
Price is the trickiest differentiator. Most sellers have an automatic bias to offer a lower price to beat the competition. When buyers cannot differentiate vendors and their products, they too will fall back on price - “I can’t tell you apart, so I will buy the cheapest solution.” However, price can also be used as a signal of differentiation. There is a message in pricing. The lowest priced offering conveys a message of lower quality or capability or vendor desperation. The highest priced product conveys brand confidence and quality, but it can also convey a message that this offering is for buyers that are not cost conscious or ‘bigger than me.’ The goal is to price competitively, while remaining consistent with your brand. There is a difference between the Mercedes brand and the Chevrolet brand, and price is an element that conveys that difference. Asking for a premium price creates the opportunity, and the requirement to demonstrate why we deserve it. Hence it creates the opportunity to differentiate based on capabilities. Whenever a vendor is a price outlier, it causes buyers to ask ‘why?’ Sellers need to be able to position the vendor and support the message conveyed by the price. It is OK to be the premium-priced offering, if the whole-product (tech and services) supports the difference. Mercedes does not have to meet Chevrolet’s price - they are doing just fine with a premium priced offering.
The seller’s job is to guide buyers to focus on the differentiations that matter, and help them avoid pitfalls or getting distracted by features they are unlikely to ever use. The key to differentiation is to make it easy for prospective customers to see the difference between us and everyone else, so it is easy for them to quickly decide to buy from us.