Differentiation and the Professional Service Firm

Do professional services firms need to be different? It's a reasonable question. After all, the vast majority of professional firms make little attempt to separate themselves from their competitors. Some of these firms have done very well for themselves without a hint of specialization or articulated market positioning. So why go to the trouble of standing out when, apparently, you can succeed without breaking the mold?

The question, I believe, is not whether you must have a differentiation strategy; clearly, thousands of firms have demonstrated that it’s possible to live without one. The real issue is whether your firm might be better off if it chooses to cast itself as different — to talk about itself in a different way or cater to a smaller but under-served piece of the market pie.

The answer depends on your firm’s situation. Young firms, for instance, often have trouble breaking into mature markets that already are served by established competitors. They lack the awareness, credibility and star power to attract a lot of attention. Differentiation, then, becomes a tool that a small firm can use to break through the white noise of the marketplace and make itself heard. If, for instance, a firm chooses to specialize in a specific segment, it can speak with greater authority to its target audience.

Many midmarket firms are experiencing slowing growth or declining revenues as the market cools down. In a soft market, competition can grow fierce as marginal companies cut their fees in a desperate attempt to stay solvent. Firms that stick to a differentiation strategy, however, can be less susceptible to price cuts so long as people seek them out for reasons other than cost.

But if your firm is growing aggressively, something else is at work. You likely already have a competitive advantage in place, or you may be growing through the acquisition of successful smaller firms. Either way, you may be better off concentrating on the fundamentals (customer service, reliability, expertise, and so on) to protect your existing client base, integrate your expanding workforce, and encourage referrals.

Getting to Different
Of course, no differentiation strategy is worthwhile if it ignores customers’ desires. Being different for different’s sake doesn’t cut it in a competitive marketplace. Our research shows that most clients want to engage in a conversation with their service firms. So talk to your customers and find out what about your industry frustrates them. Ask what you can do to distinguish your firm over others. The answers are in front of you. It’s up to you to ask the right questions.

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