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Differentiate your products to create sales, protect margins

10th July 2015

  

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Creating sales and protecting margins: why it’s critical to be demonstrably different

“Differentiate or die.”

American marketing consultant Jack Trout was not being glib when he made that emphatic statement. It highlights the blunt fact that, if customers cannot tell the difference between you and the competition, then rock-bottom pricing is your only hope for survival.

Every business-to-business (B2B) company would like to charge higher prices and earn higher margins. But when a B2B company’s products and services appear no different to those of competitors, customers naturally battle to decide who to buy from. So, they base their decision on price and buy the cheapest.

If you compare companies competing for sales in the same markets, they often look pretty much like clones of one another. And being a clone is a formidable barrier to protecting margins, retaining customers and attracting new business.

The task of creating profitable sales becomes even harder when suppliers market themselves with matching jargon. Take the corporate information and communication technology market as an example. Technology companies typically provide innovative, world-class solutions that combine best-of-breed products with best practices to deliver bespoke synergies through holistic partnerships that mitigate risk and add comprehensive value in converged value chains.

It is a world in which core competences are harnessed to address key imperatives for all stakeholders – where thought leadership is leveraged to deploy next-generation solutions through cutting-edge methods that yield competitive advantage. And continuous improvement is achieved end-to-end with seamlessly integrated turnkey projects that are dynamic, flexible, adaptable, scalable, modular and futureproof.

See? An entire sector has been infected by meaningless buzz phrases. Although my example of commonplace brochure-speak might perhaps be vaguely amusing, there is nothing funny about it commercially. By describing themselves with this sort of identical-sounding gobbledegook, companies create a rod for their own backs by allowing price to become their only visible differentiator. When that happens, there is only one rule: it must be a low price.

Besides simply refusing to allow their marketing to portray them as a clone, B2B companies seeking to differentiate themselves from competitors face a more challenging problem: commoditisation.

In globalised markets, where customers can now source products from Bulgaria to Brazil, there is a growing similarity between the features and specifications of even the most sophisticated products and services. Increasingly, they are seen by customers as being no more distinct than basic goods like plastic bags or paper plates.

When products and services are perceived as essentially the same – as commodities – customers will always look for the lowest price. For undifferentiated suppliers, this means suffering the inevitable damage caused by being forced to sell on price; deals are either done at painfully low margins or lost to cheaper competitors. And multimillion-rand contracts certainly do get lost over relatively small amounts.

By continuing to promote features and specifications, B2B companies run the risk of falling into a ‘commodity trap’ that puts constant pressure on their pricing. In essence, the trap is created when companies promote what they do, instead of promoting what they do for customers – in other words, when they are productcentric, not customercentric.

To avoid the commodity trap, companies need to convince customers how they are different from their competitors, and why those differences make it worth paying higher prices.

So, how should a B2B company differentiate itself? Despite appearances to the contrary, all companies are different. Just like people, no two companies are exactly the same. They differ in how they provide their markets with relevant and credible answers to four simple questions: Who are you? What do you do? How do you do it? Why does this matter to me, the customer?

Answering these questions in a customercentric manner is critical because it reveals the ‘evidence of difference’, which highlights what customers value and why they will pay for it.

Here is why that evidence is so important. From a customer’s perspective, if you have been in business for 100 years, so what? What is the relevance of your manufacturing facilities, processes or quality controls? Why does your skills base and sector experience matter? What is the significance of your stockholding? Where is the value in your after-sales support?

Identifying and promoting the evidence of difference lies at the very heart of creating profitable sales at premium prices. Unless you can prove to them how it contributes directly to their success, customers do not give two hoots if you were founded in the year dot, have ultramodern factories, run Kanban systems, are ISO-whatever-certified, hire the top talent, operate extensively in their sector, hold big inventories, or provide nationwide 24/7 service.

If they cannot clearly see how any of this creates quantifiable, distinguishing value for them, customers certainly will not pay a premium for your products and services. When they know no better, customers will just go for the rock-bottom clones’ price. And who can blame them?

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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