Embracing consumer difference in competitive strategy
Early marketing strategy was dominated by a mass marketing paradigm, the goal was to create products and marketing campaigns with the broadest possible appeal to achieve efficiencies of scale. As marketing strategy and theory advanced however, increasing awareness of consumer differences and the growing sophistication of consumer needs necessitated niche marketing strategies.
This has only grown in the present day, where sophisticated digital tools and consumer research has empowered segmentation and targeting strategies, allowing marketers to position their products with incredible specificity. These strategies are all predicated on the recognition that customers have different needs and preferences, with competitive advantage to be gained by firms best able to position their products favourably to their target audience.
Customers will have unique preferences for product features and specifications, informed by their circumstance, experience and personality, and will chose products that most closely align with these preferences. However, another critical difference between customers is how aware they are of these preferences, and therefore how able they are to articulate these needs.
This is evident in the failure of firms like Shoes of Prey in 2019. Despite consumers telling marketers that they wanted greater customisation, in practice most did not want to take on the expense, uncertainty and time-costs involved in co-designing footwear in a market saturated with affordable pre-designed shoes. In the end, mistakes customers made in estimating their own demand for a product resulted in the failure of the firm.
This is further complicated by differences in customer’s desire to seek closer relationships with firms. While some may seek long term relationships, valuing any opportunity to contribute and customise, others may only be interested in transactional relationships and react negatively to these overtures from firms.
Managing consumer difference is therefore an important, yet challenging consideration for firms seeking innovation-based competitive advantages. This literature review of 99 articles on
consumer difference explores the implications of diversity on firms’ relationships with their customers, and how this consumer difference might actually be valuable to brands.
Key findings
1. Differences in consumer needs arise from differences in characteristics (demographic, psychographic, sociocultural), but are heavily influenced through social comparison. This results in consumers often being unaware of their needs until they observe differences in their consumption and those of reference groups.
2. Differences in consumer knowledge arises from differences in resources and capabilities. Consumers are often very knowledgeable about their needs in relation to products they consumer frequently (experience), but have opinions informed largely by speculation for less frequently consumed products.
3. Differences in consumers desire to form relationships with firms are often the result of attitudes and personality traits interacting with experiences of prior relationships.
4. Transactional customers are unwilling to form relationships with brands but are also in favour of experimentation and are often early adopters of innovation.
5. Customers that are open to forming relationships with brands are often seeking to reduce risk and become brand loyal heavy users when their needs are satisfied.
6. Customers often become more accepting of relationships with brands after receiving special treatment from the firm, as this demonstrates that a mutual interest in the firm’s innovation can satisfy their own self-interest.
7. Special treatment can also facilitate social exchange and the development of a feeling of obligation towards to brand, increasing this desire to form a relationship as customers feel the need to reciprocate the treatment.
8. Prestige is also a component, resulting in greater desire to form relationships with well-known and desirable brands.
9. Diverse markets result in more diverse consumer knowledge potential, creating a resource that firms can tap into.
10. However, while greater innovation may be possible in a diverse market, the process of generating these innovations through co-design can be more difficult as it requires more complex information gathering and processing to extract knowledge from each market segment.
Recommendations
The conventional marketing wisdom has long been to carve out very specific niches for products, pursuing competitive advantage by aligning benefits to the needs of a rigidly defined target audience. Any diversity in these needs creates tension, standardisation becomes more difficult and efficiencies of scale harder to achieve.
However, as firms embrace the potential for user generated content and co-design, it is becoming clear that only some of each target audience possess the necessary knowledge into their own needs, and motivation to collaborate, required to pursue these meaningful and mutually beneficial relationships with brands.
This highlights that despite the challenges inherent in marketing to a diverse customer base, the diversity within a target audience might be a vast untapped resource for firms looking to create innovation based competitive advantage.
Firms seeking to engage in such collaboration with their customers should seek to identify users with the prerequisite knowledge and motivation, typically found in the early and late majority of adopters (with first adopters more likely to pursue transactional relationships). These users can be encouraged to form reciprocal relationships with brands through special treatment and prestige-based customer management programs.
Crowdsourcing, toolkits and co-development are excellent tools to develop new product solutions in collaboration with customers, but firms should still remain wary as it is often difficult to know when a customer is expressing their genuine needs or just speculating on what they think those needs might be.
The failure of firms such as Shoes of Prey serve as a cautionary tale against blindly following the advice of customers without regard to this diversity of knowledge, and highlights that not all users will want to collaborate with brands.
Managing these persistent competing demands may be the greatest challenge for organisations seeking to engage in innovation with their customers. Yet, effective management of these challenges has been shown to spur greater learning, agility, creativity, efficiency, future innovations, performance, and competitive advantage within organizations. Despite the challenges, customer diversity should be regarded as an opportunity to create value rather than as a problem to be minimized.
Researcher
More information
The research article is also available on eprints.