The differentiation dilemma: How to stand out in a crowded retail market
Bruce Peterson

The differentiation dilemma: How to stand out in a crowded retail market

Steven Maxwell
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Competition within the UK grocery retail sector is arguably tougher than it has ever been. Driven by increasing competition on price and ever more options for consumers, retailers have been making great efforts to differentiate from their rivals. But are these efforts really having an impact? Former Walmart executive Bruce Peterson argues that too many companies are making the same differentiation pitch to effectively succeed.

Peterson – now president of Peterson Insights – believes many retailers now face a ‘differentiation dilemma’ as a result of trying to cover too much of the same ground as competitors and risk offering a mediocre service by failing to focus on the most important aspects of their businesses.

Speaking at the Amsterdam Produce Show, Peterson said companies wishing to differentiate from rivals required a clear idea of their proposition and identity, arguing that those companies who lost focus risked losing customers, regardless of the business’ size.

Differentiation dilemma

Starting his Walmart career in 1991, when the company only had six super centres, Peterson rose to become senior vice-president of perishables responsible for USD$36bn of retail annually by the time he left in 2007, by which time the retailer had some 24,000 outlets. Peterson went on to become CEO of Naturipe Farms, which he says provided him with an understanding of the supply side of the fresh produce business as well as its retail end.

However, he argued that regardless the size or type of company, it is likely to face the dilemma of being able to differentiate itself effectively from competitors. “It really doesn’t matter where you are in the supply chain,” Peterson said. “You have the same problem – how do you make yourself stand out?”

Clear focus

Retail consolidation, said Peterson, has had a number of side effects. One of the biggest is that the supermarket sector has evolved from regional, privately-held operators to a large, multinational, publicly-held business. The consequence of this, he said, is that from being largely fragmented the market has become highly concentrated, with far fewer players.

At the same time, demands on suppliers – driven by how consumers buy products – have also changed significantly, with the development of the online market being one of the most significant.

What all that in mind, Peterson continues, how can retailers go about making themselves stand out? The answer has often been a commitment to being the best at fresh produce, sustainability or sourcing locally.

He argues that the problem with all of the above is that too often such commitments merely echo those of other retailers. Instead, Peterson believes grocery retailers should be focusing on being operationally excellent, and excelling in products and services.

“Any company has to manifest excellence in one of these three areas. If you can excel in one of those areas, you can become viable. If you can excel in two or more of those areas, you can become unassailable.”

Demonstrating excellence

Peterson defines operational excellence as being focused on price and logistics, citing deep discounters Aldi and Lidl as key examples of how to achieve this aim.

“Despite what anyone might tell you, price does matter. If you think price doesn’t matter, ask the major retailers in the UK what happened when Aldi and Lidl came into town.”

But if a retailer is not going to have the best prices, Peterson argues that they need to demonstrate product excellence, whether that be in value, convenience, healthiness or indulgence.

Marks & Spencer, Whole Foods and Waitrose are all companies that Peterson cites as having value proposition driven by product excellence.

“Product excellence can be demonstrated by breadth of assortment or depth within a category of merchandise. A product may not have the best quality standards, but it may be in a convenient package, so excellence needs to be defined by the consumer value proposition.”

Again citing Waitrose and Whole Foods as prime examples, Peterson says service excellence is focused on the experience delivered to customers.

“You walk in and you get taken care of, you walk out and you’re feeling good – you may pay a lot of money but you feel it’s worth it because of the experience,” he said.

However, at the root of retail success, continues Peterson, is being able to define who retailers’ key customers are.

“There is absolutely nothing that you can get today that a consumer can’t get someplace else, and everybody is trying to do the same things – buy local, sustainable, socially responsible – that you are doing.”

Positive influence

If a company is going to successfully differentiate itself from competitors, it needs to have a very clear idea of its super-value proposition and consciously decide who it wants to be.

“You cannot be all things to all people,” argued Peterson.

“The retail landscape is full of people who lost sight of their core value proposition. There is no bullet-proof business, regardless of size.

“It’s important to define who you are and you have to execute excellence.”

Successful companies, he said, have the ability to positively influence consumer behaviour through excellence and consistency.

“It’s far better to be excellent in a few things than marginal in a lot of things. Being stuck in the middle is the worst place you can ever be.”

“The great opportunity for all retailers and suppliers is the fragmentation of consumers,” he added.

“You don’t have to worry about being a massive entity selling to a massive entity, you can survive in the niche space. The mass market is becoming less and less relevant.”

 

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