I see opportunities for deeper differentiation in every professional service business I encounter. The benefits are potentially massive. I want to explain why I get excited by it.
Differentiation in the business world simply means being different from competitors in ways that potential clients value. Differentiation allows professional services to stand out, even in a crowded market. When executed well, differentiation leads to high demand and attractive profit margins.
Every professional service firm has a fantastic opportunity to differentiate more deeply. This is just as true for well-established firms as for new firms starting out.
Imagine your favourite place to eat
To illustrate what I mean, think of your absolute favourite place to eat. That cafe or restaurant you crave when you haven’t visited in a while. Let's call it Maria’s.
Maybe it's the food at Maria's, the atmosphere, the view, or something else entirely. Whatever it is, your love for Maria’s is not based on their prices. In fact, you’d keep coming back without hesitation if Maria’s hiked the prices.
The key is that you value something unique about Maria’s. That's what I mean by being "deeply differentiated".
Maria’s enjoys some enviable advantages:
- It has a strong base of repeat customers (like you), reducing the need to constantly acquire new customers.
- It has loyal fans (like you) who gladly refer others, minimising marketing expenses.
- It has amazing online reviews, further minimising marketing expenses.
- Its customers are generally price insensitive (like you), allowing for healthy pricing and profit margins.
- It doesn’t get caught up in price wars with competitors.
Maria's has set up a virtuous cycle with positive feedback:
- Differentiation boosts the perceived value to customers.
- Higher perceived value justifies premium pricing, which leads to leads to higher profit margins
- Higher margins enable Maria’s to keep up the value (buy the best ingredients, pamper customers, hire wonderful staff who stay for years and keep customers happy), continuing the cycle of growth.
These very same benefits can be achieved in any professional service firm through deep differentiation
Conversely, a lack of differentiation leads to a constant struggle to attract and convert new clients. Potential clients will constantly question what makes you different from the competition, and price will inevitably become a major factor. It’s stressful to run a business like this. I know that from personal experience!
If you want your firm to have the magnetic pull of Maria’s, differentiation is essential.
