How to Gain a Differentiation Advantage for Your Business
In order to gain a differentiation advantage in the market, you must be able to understand and be able to articulate the following:
Know specifically how your business helps customers make more money
Understand how you will make our customers more money in the future
Measure and track how much money customers make doing business with you over time
Measure and track how much more money our customers make doing business with you compared to your competitors
In this article, I will break down these important components and walk step-by-step through the process of determining your business advantage.
Know specifically how your business helps customers make more money
When your business or product was launched, it was most likely based on solving a need in the marketplace. In most cases, this either helped your customer make more money themselves or helped them save money (which can result in making more money) or some combination of both. However, in order to understand your differentiation in the market, you have to be crystal clear on how you help your customers make money.
At one company I worked at, we served both a B2B and B2C customer. For the B2B customer, our service was built around the model of making the customer more money, while on the B2C side, it was about saving the customer money. Having multiple advantages in the market is fine, as long as you understand how to speak to those differentiations in your marketing and value proposition(s).
Understand how you will make our customers more money in the future
Your product line and/or services should be growing and changing as time goes one, therefore you need to be aware of how your business is going to continue serving your customers so they can continue making more money in the future. Having a simple roadmap (maybe a more detailed one for internal use, and a simplified version to share as part of your value proposition) is a great way to document how you will continue delivering value to your customers.
Measure and track how much money customers make doing business with you over time
If your business operates within a specific industry, you might have a good idea roughly how much your customers charge for their products and services. With some simple math, you should have a fairly good idea of what ROI your customer is getting from your product or service. Knowing this can be key to demonstrating your value proposition and differentiation advantage in the market and your goal of gaining market share.
If you don’t have visibility into your customers’ pricing structure, formulating a strong relationship to be able to ask what monetary value your product or service offers towards their profit margins, might be worth a try.
Measure and track how much more money our customers make doing business with you compared to your competitors
Similar to the one above I just mentioned, with a little competitive intelligence work, if you can figure out exactly how your competitors pricing works and balance that against how it would affect your customers’ money making ability compared to what you offer, you can build a strong case for your differentiation advantage.
How to Evaluate Your Current Value Proposition, Validate Your Differential Value, and Identify Opportunities to Improve Your Competitive Advantage
There is a three step process to determining your differentiation advantage now and into the future. The following are the three components of this process and brief tactics you can take to work towards each process’s completion.
Step 1: Current Value Proposition
Take the internal temperature current value proposition with customers by asking them things like why they chose your product/service over the competition or what element of your offering was the most compelling in their decision making process to choose your product/service.
Form cross-functional teams to gather and identify what delivers real and measurable differential value to customers.
Build quantitative measurements and models of the differential value to create data-driven decision making in future analysis.
Step 2: Validate Differential Value
Ask some of your key customers to evaluate each part of the value proposition you have created.
Analyze the value proposition’s financial impact on the business.
Identify what’s adding value and should be continued, and what is not adding value and should be discontinued or improved.
Remove blind spots and foster open dialogue with your customers.
NOTE: I really like the fourth bullet point in the above list because I believe in the Agile methodology and the thought that you should be focused on customer value and making that your priority. Working closely with your customers will make formulating your value proposition not only easier, but more accurate to what will make you stronger in the market and grow your business with current and potential customers.
Step 3: Identify Opportunities
Ask your customers the “checkbook question” (questions related to what they foresee as needs they will have and will be willing to pay for to help them with their business) to gain valuable insight that can help you build robust product/service innovation pipelines and conduct strategic planning.
Understand how specific investments your customer will make to acquire products and services will directly impact their profits so you can find ways to deliver more value that makes your competitive advantage hard to beat.
Key Takeaways
There are many differentiation strategies you can use in your market.
Commoditized industries with economies of scale tend to focus on pricing differentiation. Lower prices is a go-to in competitive price wars between companies.
Others will focus on unique products with unique features not offered by other competitors.
If lowest cost is not an objective, then a value proposition might be superior performance.
Some companies have the ability to rely solely on brand loyalty as part of their product differentiation strategy. Apple is a great example of this. Apple has long relied on their brand alone to sell their products, especially their iPhone product line.
However, if there is one key takeaway I would like you to leave this article with, it is to focus a majority of your time on your customers’ needs. By focusing on your target market and delivering superior value, you will be leaps and bounds ahead of your competitors in differentiation advantage.
