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The classic economic perspective states that perfectly competitive markets are characterized by undifferentiated products that are only sold on the basis of price. Any deviation from such a characterization is considered evidence of an imperfect market. This view of the markets has led to strategic thinking that focuses on identifying market deficiencies and creating structural barriers to entry, as well as creating a competitive competitive advantage.

This view of the markets leads to a focus on avoiding competition. For most markets, at least in relatively wealthy industrialized nations, this view is demonstrably wrong. Wrong because individual differences between customers and suppliers are ignored.

Unlike the "perfect" markets described by economists, a marketing view of a perfect market is one in which individuals can exercise their idiosyncratic preferences for goods and services. They do this by matching their preferences with the idiosyncratic skills of producers and suppliers. Every “competitive advantage” results from the unique skills and willingness of a manufacturer to meet the idiosyncratic needs of consumers. This can be a single customer if the customer is willing to pay enough, but often it is a group of customers who share similar preferences. Companies that poorly match market needs will ultimately leave the market. That is why undifferentiated products are rarely successful on the market.

Differentiation can of course take many forms. Most markets have price-sensitive customers who sacrifice other potential product or service differences to get the lowest possible price.

Differentiation: a business imperative

Therefore, there is a low-cost provider in most markets that differentiates its offer based on the low price. Note, however, that in the long run, there can only be one cost-effective provider and that provider must have a cost structure that enables it to make a profit even when customers are offered a low price. Companies that are not cheap producers have to find other differentiation points, and in many markets there are a variety of differentiation options: quality, service, comfort, functions and more. Even for features such as quality, there are further differentiation options, since customers differ in the definition of quality. Success in business is therefore to find positive cash value opportunities that meet the needs of at least part of the market. In other words, success in business is finding a business model that offers profitable correspondence with a market segment.

Finding such business models is not a guarantee of long-term success, but it certainly helps. There is always the possibility that a competitor will find a better way to serve customers with higher quality, lower price, greater comfort or another differentiation point valued by customers. However, the focus is not on being better than a competitor, but on serving customers better. This competitive pressure is forcing companies to innovate, albeit to a limited extent, to better serve customers. While no market is ever really perfect, this process puts pressure on producers to offer ever better matches with customer preferences.

In this way, customers are served well by markets that work well. The challenge for a company is to react quickly and find ways to generate positive cash flow.

ContriBranding Strategy Insiders: David Stewart, Professor of Marketing and Commercial Law at the President of Loyola Marymount University, Author, Financial Dimensions of Marketing Decisions.

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