Sustainable Unique Value

A significant challenge for Starbucks is its emerging ubiquity. Can the variety of personal choices inside Starbucks overcome a growing perception that Starbucks is itself the new generic? Is the differentiation strategy implemented by Starbucks sustainable when the rule-breaker has become the rule-maker?

Starbucks will face new challenges. But their initial differentiation strategy has been proven. It was a big risk, but they chose well, and executed effectively. Their strategy has been sustainable.

Many attempts at differentiation fail because the enterprise cannot afford the costs of differentiation. Early in the new century Mitsubishi Motors focused its marketing on drivers in their 20s and early 30s. Product design and advertising signaled and secured a shared value chain with this audience. In 2002 Mitsubishi Motors joined many of its competitors in offering “zero down, zero interest, zero payments for 12 months.”

The pricing tactic was successful in moving product among the demographic market – young and single – that the differentiation strategy had targeted. This market includes the highest credit risks of any demographic segment. An extraordinary percentage of 2002 buyers failed to honor their loan commitments. Two years later Mitsubishi Motors faced a serious threat to its survival directly related to a successful differentiation strategy.

In the enterprises I have led, I have struggled with effective execution of a differentiation strategy. Most customers have communicated that these enterprises lowered buyers’ costs and increased buyers’ performance. But even when prices are – according to long-time clients – 20 to 30 percent below market averages, we have had difficultly persuading prospective clients (and a few current clients) to recognize this value.

In some cases the unique value offered relates to costs and performance that a client considers peripheral to its core value. This suggests we have not effectively linked value chains and have not done a good job signaling unique value. So far we have been unsuccessful in changing the rules. In seeking strategic advantage I am inclined to pursue differentiation, but because of poor execution the customer base has often remained too shallow to ensure sustainability.

According to Michael Porter, “The sustainability of differentiation depends on two things, its continued perceived value to buyers and the lack of imitation by competitors. There is an ever present risk that buyers’ needs or perceptions will change, eliminating the value of a particular form of differentiation. Competitors may also imitate the firm’s strategy or leapfrog the bases of differentiation the firm has chosen.”

Moses was ready to adjust his tactics and techniques to achieve effective strategic execution. But his fundamental strategy was very consistent. He focused his differentiation strategy on what he understood to be the core human need to love and be loved; to value and be valued. Moses chose to organize around a need so fundamental that there was no risk that the buyers’ needs might change.

In preparing his people for his death, Moses admonished, “You must not distort justice (mishpat); you must not show partiality… Righteousness, only righteousness (tsedeq), you shall pursue.” (Deuteronomy 16:18-20) Righteousness and Justice were the two interlocking strategies that Moses was confident would differentiate his people and provide them a key comparative advantage. Later it was written of God, “Righteousness and Justice are the foundation of your throne, steadfast love and faithfulness go before you.” (Psalm 89: 14)

In the Books of Moses righteousness is evidence of God’s will expressed within the individual. This is the fundamental true self. Justice is evidence of God’s will expressed within community. Justice is the outcome of a harmonious web of human relationships where each true self is valued and respected without partiality. Moses almost certainly understood that these goals would never be fully achieved. But he also perceived that the struggle to achieve these goals would have innate, recognized, and sustainable value.

Most enterprises could choose to organize their strategy around the fundamental human need for a community of true selves. But many enterprises actively choose another path. In our personal relationships we often make a similar choice.

One of the first neuroses identified by Sigmund Freud was the “narcissism of small differences.” This is characterized by behavior where the individual seeks to differentiate him or herself from others through superficial means. I often wear bow-ties. In a healthy person or enterprise, such behavior is a signal of a more substantive source of differentiation. I hope my bow-ties signal a thoughtful non-conformity and creativity. The behavior becomes unhealthy when these signals are the only source of differentiation. I have four or five bow-ties. If I had dozens and agonized over which one to wear I would have slipped from signaling to narcissism.

Too many enterprises depend on the cultivation of narcissism. This approach will occasionally result in significant tactical success. It is, however, a strategic dead-end. The narcissist will never be satisfied and a narcissistic customer has no loyalty. In a market where narcissism is the reigning value there is no sustainable unique value or comparative advantage, there is only churn, mutual destruction, and survival of the last one standing.

Some enterprises – for example prominent advertisers in Vanity Fair – may seem to do very well responding to and encouraging narcissism. But there are very few enterprises or individuals in this sector that achieve sustained success. The executive of a leading cosmetics firm was once asked the secret of its unusually long-term success. He is said to have replied, “I always remember we are not selling colors and fragrance, rather we are selling hope!”

Addressing real and healthy human needs – including our abilities to create, empower, love, refrain, frame, and redeem – is a sustainable path to comparative advantage.