For the majority involved in running an organisation of any size, if they are completely honest a customer can find the same product they sell or the service they provide elsewhere, this is just a painful truth and there are very few exceptions to this. As such differentiating a business and generating repeat custom is probably in the main achieved through one of five factors; price, convenience of geographic location, high switching costs, loyalty from existing relationships or customer service levels.
Of these five factors, we take the focus off high switching costs as these are specific only to existing customers and only to certain sectors, and this can be overcome with planning and/or timing. Convenience of location again can be overcome by competitors, this time through logistics or by opening a presence within close geographic proximity. Loyalty from existing relationships can only really be generated on mass by nurturing through good customer service over a period of time, and so can’t be separated from customer service. So from five we are left with just the two key factors in differentiating from competitors and achieving repeat business, which are price and customer service levels.
There are those that may argue that customers wanting to align themselves or their business with certain brands constitutes a sixth factor, but then the greatest example of this kind of magnetic brand attraction for our generation is probably Apple Inc., certainly within a B2C marketplace. Whilst having a unique hardware range, Apple have also achieved their status by way of exceptional customer service for which people are willing to pay a premium for both product and customer service, and the iconic brand status they have now couldn’t have been achieved to the same degree without the latter.
So between price and customer service levels, differentiating by price is certainly the easiest route for any business to take, as fractionally undercutting the competition (by reducing profit margins) won’t take much effort at all. It won’t take much work in terms of staff training either, minus one or two percent on competitor rates or prices is actually something most people could undertake without training, and so a few ‘Price Promise’ graphics at the POS for a retailer for example and the task of differentiating with the competition is complete. The only problem with the price route is some competitors will surely take the same path, and the reduction in profit margins quickly then becomes the slashing of margins.
A further downside to differentiating by price is on a human level, since this generates little in terms of personal career satisfaction for executives and indeed for the staff on the frontline too. With less profit margin you need more customers, and so can spend less time on servicing each. That warm feeling when you get home from a job well done are feelings you mostly gain after providing a great service and are striving to be the best at what you do.
Whilst providing exceptional customer service and building relationships with customers takes time and isn’t something that’s easy, it’s certainly something you can put a tangible margin on as people will in the main pay at least a little extra for good customer service and support. In short customer service is probably the only factor in business where you can truly provide something unique, that cannot be copied, and being the top for customer service also builds loyalty and can retain or increase profit margins. If you decide not to be at the top for exceptional customer service, then you probably have little choice but join a terminal race to the bottom in terms of price. At the bottom though I expect you will find very little loyalty, and even less profit, and when a competitor arrives that enjoys greater economies of scale and/or purchasing power, then at that moment your business will complete its decline to failure.