Crafting a Differentiation Strategy for Professional Services Firms

Written by: Lee Frederiksen and Elizabeth Harr

Have you been competing for work that you are more than qualified to perform than the competition, only to lose the deal because you were underbid by that competition? Or maybe you have been the one underbidding, which leaves you little room for margins or growth.

If you find yourself repeatedly competing on price alone, it’s time to develop a stronger differentiation strategy.

Differentiation Strategy Defined

A differentiation strategy is the way in which you make your firm stand out from otherwise similar competitors in the marketplace. Usually, it involves highlighting a meaningful difference between you and your competitors. And that difference must be valued by your potential clients. A strong differentiator will provide a competitive advantage for your firm.

Michael Porter, the famous strategist, maintains that there are only two ways to gain a sustainable advantage over your competition. One way is to compete on price, highlighting the similarities you share with your chief competition:

“We’re just as good as our competition, but we cost less.”

Unfortunately, unless you have a sustainable cost advantage, you can’t keep up this strategy for long. All it takes is someone willing to undercut your lowest price. The lowest-cost strategy also exposes you to commoditization and a much wider range of competitors, including do-it-yourself options, off-shoring and automation.

Download the Differentiation Guide for Professional Services

Porter’s other way — and usually a better way — is to set your firm apart. Be different. Separate yourself from competitors in a way that is meaningful and relevant to potential clients.
Determining how to do this is a differentiation strategy.

Now, a point of differentiation may be broad-based and set you apart from the rest of the industry, or it may be more narrow, appealing to a niche market. This second approach is often referred to as a focused or concentrated strategy.

Differentiation Strategy Examples

One way to set your firm apart would be to adopt a business model that’s different from your competitors. Let’s say that hourly billing is widespread in your industry. Offering a pay-for-results billing model, instead, would be a clear differentiator.

Of course, developing a broad-based differentiation strategy—one that’s substantially different from your competition—isn’t always easy. And even if you were able to pull it off, what’s to keep a competitor from emulating your approach?

This is why many firms choose to compete with a focused strategy. In a focused strategy you narrow your appeal to a niche audience.

For example, an accounting firm that works exclusively with chain restaurants has a differentiator that is very compelling to that niche market segment. However, other segments, such as automobile dealers, would find no value in working with the restaurant specialists.

At first, this strategy may seem to leave lots of potential business on the table. And in fact, does. And that is the point. The universe of competitors that serve all audiences is huge, so it is hard to attract attention to your firm amidst all the noise. And when you do get an opportunity to bid on a project, you will often feel compelled to compete on price because there is little that distinguishes you from your rivals in the eyes of the buyer.

When you are differentiated, however, the situation changes. While your pool of competitors will shrink, you become very interesting to your buyers and you will attract many more qualified leads within your area of expertise. But that’s far from the only advantage of differentiation. We explore some of these benefits next.

5 Advantages of Differentiation

1. YOU DO NOT HAVE TO COMPETE ON PRICE ALONE.

Once you have distinguished yourself from a sea of look-alike competitors the prospective client cannot reduce their choice to the dimension of cost alone.

2. YOU ARE MORE APPEALING TO YOUR TARGET AUDIENCE.

Since you are different, and presumably better than a generalist, you make a more appealing choice. This makes it easier to generate interest and close sales.

3. THERE IS NO DIRECT SUBSTITUTE.

Well-differentiated firms are unique, which means a buyer can’t directly compare you to other service providers. This forces the prospect to focus on the incremental value of your difference. This adds value that other options do not have.

4. YOU INCREASE LOYALTY.

Greater value and a lack of comparable substitutes result in greater loyalty to your firm. There is no good reason to switch (assuming you are delivering on your promise)—and no comparable alternative to switch to.

5. YOU CAN COMMAND GREATER FEES.

If your point of differentiation delivers additional value and is not available elsewhere you are in a position to command higher fees. This is especially true if your differentiator is around specialized expertise.

Whether your strategy is broad or very focused it must always start by identifying your firm’s differentiators. Let’s start with a definition.

Download the Differentiation Guide for Professional Services

What is a Differentiator?

A differentiator is a characteristic that makes your business meaningfully different from your competitors and more valuable in the eyes of your target audience. Differentiators are the building blocks of a differentiation strategy.

But simply calling something a differentiator doesn’t make it one.

First it must pass three tests.

Three Tests for a Successful Differentiator

How do you know you have a good differentiator? We recommend you put each one to the test. If it can pass these three critical checks, it may be worth developing into a broader differentiation strategy:

1) IS IT TRUE?

Differentiators can’t be imaginary. Apart from the ethical hazard of making stuff up, it is simply too easy for people to see through exaggerated claims. Whatever you claim as a differentiator, your firm has to live up to it each day.

For example, many firms say they have superior client service, but they do nothing special to actually deliver on this claim. No special policies. No special training. Nothing to ensure it actually happens. The bottom line is they are no different than a slew of competitors that make the same claims.

2) IS IT RELEVANT?

If your point of distinction doesn’t matter to your prospects, it won’t bring you more business. In the end, what is most important is what plays into your target prospects’ selection criteria and decision-making process. Any irrelevant differentiators are wasted effort.

We once had a lobbying client that believed their strongest differentiator was their firm’s lack of conflicts of interest. Their competitors certainly could not make the same claim. But, when we dug a bit deeper, we discovered that their clients and prospects didn’t consider impartiality to be a strong vetting criteria. In fact, they assumed that most lobbying firms already had this in place. So much for a strong brand differentiator.

3) IS IT PROVABLE?

This is often the most challenging test for a differentiator. You may have identified a true and relevant point of distinction, but it is useless without proof. Even if a differentiating statement is true, if you can’t substantiate it with evidence buyers won’t believe it. Amidst all the marketplace noise, they have become inured to empty claims. They simply ignore them.

Here’s a popular differentiator candidate we hear from many clients: “We have great (or the best) people.” It is a trap! Why? Well, have you ever heard a firm claim they have average people?
Didn’t think so.

But there are exceptions. One of our clients provides specialized software development services — and they hire only PhD-level programmers. They actually can support a “great people” differentiator with evidence.

The Challenges of Maintaining a Competitive Advantage

You are well on your way to a solid differentiation strategy once you know what sets you apart from your competitors. Especially if you can explain — and prove — it in a way that is relevant to your target audience. But you are not done yet.

The marketplace doesn’t stand still. Shrewd competitors will look at your success and attempt to copy it. Over time, what was once a distinctive characteristic may be neutralized, and your competitive advantage will be lost.

As a result, your differentiation (and its corollary, positioning) may change over time. This means you need to keep an eye on your competitors, their services and how they talk about themselves. At some point, you may need to move on to a new point of differentiation.

One way to counteract this vulnerability is to build a sustainable differentiation strategy to make your expertise exceptionally visible to your target audience. This “Visible Expertise” will become the foundation of your professional services brand. And because visibility takes time to build, it is difficult to copy.

Why Visible Expertise Matters to Professional Services Firms

This brings us to the topic of expertise and why it is so critical to professional services.

In professional services, expertise is what you sell.

Clients aren’t buying your services because they like them. They are buying your services to solve a business problem or seize an opportunity. For example they may need help complying with a regulatory requirement or solving a critical strategic challenge.

Our research into professional services buyers describes what criteria companies use to select one service provider over another. One of the most common selection criteria is expertise, and it is the factor that most often tips the scale in favor of the contract-winning firm.

But what about the argument that professional services are “a relationship business”? Well, that assumption is partially true. Good business relationships are certainly helpful. As we outlined in our research report, Inside the Buyer’s Brain, both buyers and sellers of professional services understand the importance of an existing relationship, but sellers consistently underestimate the role their reputation plays in the final selection.

Also, a strong reputation for expertise is the one factor that can overcome an existing relationship. If a company does not believe their current provider can solve a problem, they will look for a firm that can.
Not long ago, a prospective client came to us for our marketing expertise. Previously, he had hired a life-long friend to help with his marketing. Despite their close relationship, he had fired his friend (and hired Hinge) because his friend could not solve his marketing challenge. Our strong reputation for solving the specific marketing challenges faced by professional services firms was more important than their personal relationship.

According to our most recent study of referral marketing, visible expertise plays the single most significant role in driving referrals. Relationships — both social and professional — are still important, but only when there is an awareness of your expertise.

SEE ALSO: WHY PROFESSIONAL SERVICES BUYERS SEEK OUT VISIBLE EXPERTS

Overcoming the Problem of Invisibility

Developing expertise as a differentiation strategy sounds like a great idea, but there is a catch. Clients are notoriously uninformed when it comes to judging actual expertise. Consequently, your firm’s expertise is often unseen by the marketplace.

And if your firm’s expertise is not visible, for all practical purposes it doesn’t exist.
Fortunately, it is possible to make intangible expertise visible and real.

We conducted extensive research on highly visible experts and the professional services buyers who hire them. As we outline in The Visible Expert Revolution, there are certain strategies and techniques that can elevate the visibility of your expertise in the marketplace.

Public speaking, writing blog posts and articles, and publishing books are all effective ways to demonstrate your expertise. And there are many others. The value of these different techniques, when put together as part of a differentiation strategy, has been proven time and again by clients that go through our Visible Firm® or Visible Expert® programs.

But the only proven way to make your expertise visible and turn it into a credible differentiator is to have a clear strategy.

Get our new book, The Visible Expert Revolution today!

Building Your Differentiation Strategy

Developing and implementing a differentiation strategy is a five-step process.

1. START WITH AN UNDERSTANDING OF EXACTLY WHAT YOU WANT TO BE KNOWN FOR.

What are you expert in? Your area of expertise or other differentiator should be broad enough to be enduring and relevant to your clients. But that breadth must be balanced. The narrower and more specialized your expertise, the easier it is to make it visible and defend against potential competitors.

2. THE NEXT STEP IS RESEARCH.

Research will help you align your firm’s offerings with the desires and preferences of potential clients. It will also inform your selection of issues to write about to make your expertise more visible to your target audience. We have found that firms that research their target client group tend to grow faster. In fact, the fastest growing firms (those that grow at least 20% year over year) take it a step further and are more likely to use original research in their content marketing strategy.

3. DEVELOP YOUR DIFFERENTIATORS AND FOCUS.

What sets you apart from competitors and delivers exceptional value to a segment of the market? Build a list of potential differentiators and put them to the three-step test. If you end up with three to five differentiators, that’s great. Even a single strong one can be plenty.

However many differentiators you have, you’ll need a focus. That focus, along with the supporting differentiators, will inform your positioning statement. Your positioning statement is a short statement that describes what your firm does, who it does it for and why a prospect should choose you. Think of it as the DNA of your differentiation strategy.

4. BUILD YOUR STORY.

Next you’ll need to tell your story to your target audience. Most prospective clients check you out on your website, so that’s a great place to start. First impressions matter. Help visitors answer the question, is this firm for me?

But your website is only the beginning. You need to make that all-important expertise visible to the outside world. How? Publications, webinars, workshops, speaking engagements. How about video? The list goes on.

The point is you need a plan to turn the strategy into a reality. Then you need to build the tools to make that plan happen.

5. TELL THE WORLD.

Now it’s time to tell the world, or more specifically your target audiences, the story of your firm. Implement the plan. Track your efforts and their impact. Monitor the new business pipeline. Then test and adjust. Each time you make results-driven adjustments, the message gets better and the brand gets stronger.

Evaluating Your Differentiation Strategy

The research on evaluating a differentiation strategy is still evolving. However, we’ve learned some important things already. For example, we know that highly visible experts accelerate the growth of a firm by 1) attracting new leads and 2) making it easier to close them as clients. We also know the fastest growing, most profitable firms use strategies and marketing techniques that raise the visibility of their expertise.

A well-thought-out differentiation strategy and a commitment to implementing your plan will accelerate your firm’s visibility and perceived expertise. Figures 1, 2 and 3 show the average increase in visibility, perceived expertise and new business leads experienced by firms that went through Hinge’s Visible Firm program, which is based on the principles we’ve outlined in this article. These data will give you a feel for what is possible when a comprehensive differentiation strategy is fully implemented.

Figure 1. Increase in Visibility

Figure 2. Increase in Perceived Expertise

Figure 3. Growth in Online Leads

These are certainly impressive results and they speak to the pivotal role that a differentiation strategy can play in the growth of a professional services firm.

Related: Top 10 Benefits of Online Marketing for Professional Service Firms