The hidden differentiation tax you pay on your business growth – The Growth Tax Newsletter #3

It’s been a big week for Jaguar. Their colourful re-brand and new ad has been widely criticised, being more reminiscent of a Paris fashion label than it is a luxury car brand. It didn’t help that they forgot to include any actual cars. It’s left a lot of people very confused, having seemingly ditched a near 90-year’s worth of brand heritage and visual identity. 

Most importantly, it seems to have forgotten who buys Jaguar cars. 

This relaunch comes as the now-Indian owned car brand has been struggling with sales, due to reliability issues and a nomadic attitude to what made it great. Recent attempts to stand out in a dynamic and crowded marketplace have failed. And this is where they’ve ended up.  

Differentiation must always be set in a context, with a laser-like focus on the customer and an unwavering commitment to educate the audience about who the brand is, what it stands for, and most importantly what it does. 

Without this context differentiation is not only irrelevant but the inconsistency confuses the audience and risks damaging the brand image permanently in the mind of the customer. Jaguar has certainly grabbed the headlines but such fundamental changes to its brand and target customer come with huge risks. It may not recover. 

The Differentiation Tax

In this newsletter we’re talking about the differentiation growth tax – the loss of growth and revenue that occurs when a brand or business looks, sounds, and acts like everyone else and is insufficiently different (compared to its rivals) in the mind of the target audience. 

growth tax, noun

A hidden cost or inefficiency that slows down a company’s growth rate, reducing its potential to expand and succeed in the market.

Be different, not unique, to find competitive advantage

 Many businesses claim to have a number of unique selling points (USPs). Our own research, with input from 100 senior business leaders, highlighted that 1 in 3 businesses considered themselves to be offering something unique in their market. The practical reality however is that (very!) few businesses do anything truly unique, and if something unique comes along, it’s copied and replicated almost immediately. You only need to look at how quickly new mobile phone innovations are cloned – a few months after a unique feature is added, all mobile phones have that feature as standard. It’s the same whether you’re selling software development services, or smart watches. USPs are rare, expensive to develop and short lived. They rarely deliver sustainable competitive advantage. 

Differentiation is not the same as a USP. It’s about delivering on a need in the market with some degree of variety through the product/service, or the brand, or both. And that differentiation must be relevant and valuable to the target audience. 

Jaguar has been suffering from this differentiation tax for years by failing to evolve its brand in the face of a rapidly changing market. And whilst this latest relaunch is certainly “different”, it’s no closer to achieving meaningful differentiation. 

Consider the case of Tesla. There’s nothing (now) unique about their cars. Other EV brands have caught up with the technology. But Tesla still has many points of differentiation that make Tesla, Tesla. Importantly, these differences are consistently reinforced through innovation and product enhancements, supported by their brand image, pricing strategy and their promotional mix. This differentiation helps position the brand in the market so consumers feel they understand the brand, who it competes with, and which part of the car market it serves. 

As a result, their short lived USP (of being the only EV with a national charging network) has morphed into a brand associated with high performance, fun, style, innovation – fuelling 30%+ year on year (2022 vs. 2023) sales growth in a fast moving and increasingly competitive market.  

In short, Tesla has created a source of defendable competitive advantage which their marketing mix continually reinforces.

Over time, differentiation can create competitive advantage as brands become associated with attributes or emotions. Say Volvo, think reliability. Say Adobe, think creativity. These associations are what help set these brands apart, with the full marketing mix reinforcing these brand attributes and the brand reputation. This becomes hard to compete with over time, and is a true source of defendable competitive advantage. 

The Key Questions 💡

Without differentiation your brand or business is likely to be paying this growth tax; facing increased downward pressure on price to remain competitive, struggling to attract new customers and increasing costs of acquisition.

Here are the questions you should be asking your marketing team:

• Are we claiming to have a USP? If so, is it truly unique? This process starts with an honest assessment of just how different your current proposition, product or service actually is? Your target audience won’t be fooled.

• Are we perceived as different in the minds of our customers? Do we have any research or evidence to support this?  Sources of differentiation are only valuable if they matter to the target audience. The “voice of the customer” is crucial to help establish the strategic priorities inside your business. Without this perspective, the differentiation growth tax will be acting as a millstone slowing down growth.

• Do we have a plan to cultivate our source(s) of differentiation? Once you’ve identified your possible source(s) of differentiation, there should be a plan in place to reinforce these through a product (or service) roadmap and the brand strategy. Mapping competitor differentiation is also important to sit alongside this, helping you to navigate the strategic decisions required to maximise your competitive advantage and minimise theirs. 

The final word

During times of economic uncertainty, buyer behaviour changes as priorities are re-evaluated and time scales for purchase decisions shift. It’s in these periods when getting caught in the “sea of sameness” is most costly, when competing on price becomes more common and when the differentiation tax will weigh most heavily on a business. 

Don’t get caught in the sea of sameness. Start by asking the questions outlined above, and see what answers come back. It’s never too early to start thinking about differentiation and brand strategy, and our own research suggests B2B businesses have the most to gain but are often the slowest to act. 

If you found this newsletter interesting, you might find our blog post on this topic helpful too. 

If you missed our last growth tax newsletter, you can read it here. And if you want to talk to us about any of the topics in our growth tax newsletter series and how they relate to your business, drop us an email. 

Next month we’ll be unpicking Trust Tax. Sign-up to the series to make sure you get the next instalment and if you like what you read, share it with your colleagues.

Subscribe below to receive the Growth Tax newsletter in your inbox every month, before everyone else.