Negative Differentiation: An Example from National Rental Cars
An important concept of pricing is to create positive differentiation for your products. This means making your products better than your competitors. When you succeed at this, you get to charge a higher price than your competition.
However, you must beware of negative differentiation. These are typically areas where your competitors have innovated faster than you. They have created differentiation and you haven’t kept up. Unfortunately another source of negative differentiation is often operations. Companies put a process in place because it makes it easier for them, without thinking of their customers.
The other day I rented a car from National, not my regular company. The keys they gave me (pictured above) had 3 bulky keys, 2 fobs and a tag. Am I supposed to carry this around in my pocket? At home I carry a single key in my pocket. At my preferred rental company I typically get a single key with fob. Of course I had this vehicle for 4 days, so every day I thought longer (stewed more) about why they did this to me.
Think about it. There is absolutely zero value to me to carry all of these keys. If I lose one, I lose them all. In fact, I can’t think of any value to National. After all, if I lose one, I lose them all. The only thing I could come up with is someone at operations didn’t know what to do with all these keys, so instead of creating a process to store them somewhere, he said “let’s keep them all with the car.” To make their job easier, they made the product less attractive. If you’re a student of Pragmatic Institute you will recognize this as inside out thinking. There is no market problem they were trying to solve.
Now let’s put this in pricing terms. Imagine two rental car companies have the same cars, essentially the same service, and the same price. Yet one of them makes you carry all these keys and the other doesn’t. Which do you choose? That’s easy. Now, how much of a discount does the one have to give you before you’re willing to walk around with a huge wad of keys? That’s negative differentiation value. They have to charge a lower price because they have an unattractive feature.
What’s worse though is it is self inflicted. It is the result of making it easier on their employees, not their customers. Imagine the difference in price is only $1. Multiply that times the number of cars that get rented. That’s a huge number. That would swamp the cost of operations creating a process to track spare keys.
Your lesson: What are you doing that causes your customers angst? Can you fix it?
Would you like to share any other examples of companies making their products less attractive simply for their own convenience?
Looking for the latest in product and data science? Get our articles, webinars and podcasts.