Differentiation: Where the Profits Are

If your business were selling detergent, which kind would it be: the generic package that consumers choose because the price is lowest, or the name-brand product that shoppers pay more for because they believe it's superior?

Ken McCorkle of Wells Fargo Bank

If you want to survive, don't be the generic, says Ken McCorkle, senior vice president at Wells Fargo Bank. Generics compete on price because they can't count on customer loyalty, and the only way to win on price is to be the low-cost provider. Do you really want to be in a business that only survives through continual cost cutting?

"I don't care whether you're selling computer chips or potato chips," says McCorkle, a California banker with a Harvard M.B.A. "There are only two viable business strategies. Either you're the low-cost producer in a commodity business, or you're a premium-priced marketer of differentiated products and/or services. Any other strategy and you're in the Valley of Death."

McCorkle, whose specialty is agricultural loans, points to the slow, sad decline in fig-tree acreage in California, a reflection of the industry's failure to generate new ideas. Fig Newtons were the industry's last successful product innovation—in 1891. In contrast, says McCorkle, look at what's happened to carrot growers. They introduced baby carrots in 1987 and carrot acreage has since doubled.

Differentiating your product or service allows you to operate where the profits are—at least for awhile. Eventually, your competitors will catch up with you and take a bite out of your earnings. That's the natural evolutionary cycle for consumer products. You have the niche to yourself at first; then copycat producers leap in and bring the price down. What was once differentiated—your all-natural chicken taco—is now a commodity.

The only way to thrive long-term is to leave the crowd behind. Innovate with packaging, presentation, delivery. Make your food healthful, sustainable or super-quick. Give consumers a reason to choose you and not your lower-priced competitors. "If you can brand-differentiate water, you can brand-differentiate anything," says McCorkle.

Business strategists like McCorkle warn against getting caught in the commodity trap. Maybe you can make some money there in the short term, but your long-term prognosis isn't good. Historically, companies that have gone the commodity route have become extinct.

Innovations You Can Use

Raisins add desirable sweetness and texture to many pastries, breads, pilafs, stuffings and salads. But sometimes you want the sweetness without the chew. (Think mole, or smooth pastry fillings, or barbecue sauce.) That's where raisin paste, a California seedless raisin industry innovation, comes in.

Hard to believe, but fresh white mushrooms used to be exotic. Now, diners want new and bolder tastes, and the mushroom industry has responded with cultivated oyster, enoki and shiitake mushrooms that guarantee chefs a year-round supply. These mushrooms, the new exotics, help you boost check averages with an ingredient perceived as healthful and low fat.