When competitors have matched your product differentiation
For many companies, the central point to their existence is their products, and product differentiation plays a major role in how much market share they obtain. It is how they define themselves in the market and the basis of their competitive strategy.
Companies spend an inordinate amount of time and money investing in marketing products and defining their point of different or unique selling proposition. Some invest heavily in market research to create unique offerings and search for types of product differentiation. Others comb the world looking for the next big product that will leverage growth into the future.
The companies are seeking differentiation in the following ways;
Vertical differentiation – different product pricing and higher quality allowing customers selection
Horizontal differentiation – similar products and pricing with for product offers example colour as a personal choice.
The variations are the basis of their product differentiation strategy and marketing strategy. These are depending on the target market and the potential customer’s preferences. Successful product differentiation provides opportunities for higher price points.
However, what happens when your product or service no longer differentiate your company, and you are in a commodity industry?
A challenge many companies face as markets mature.
One company with whom I recently consulted had a high-quality product that had become exactly that; a commodity. They operated in a highly competitive landscape where only a few cents could see a customer’s loss. The customers hovered for the first day of the month pricing to grasp a bargain.
Customer loyalty was something of the past with only sporadic signs of it, and margins were under pressure. However, the company still achieved sales above market rates and held margins high enough to remain profitable.
To develop the business, it required a strategy that moved beyond a mere focus on the product. The product does what it does — it meets all its specifications, does all the things customers want it to do, and can be shipped anywhere in the world. However, something else had to be found.
The industry’s related products were all under the umbrella of the commodity, and there was no next big thing on the horizon for anyone. A highly regulated industry that closed doors on innovation coming to market in a realistic timeframe. They needed to seek a competitive advantage but outside just focusing the competitor’s products.
One option for adding value was to add extra service. However, this, too, was generic; it was not idiosyncratic to the company. So we peeled down another layer and asked: “What are the specific things to get a customer motivated to deal with the company?” In other words, the analysis was broken down into very fine detail to discover how the business’ uniqueness could be brought to the fore – something that can be achieved even when the product itself is far from unique.
The only way anything could be defined was to have a more intimate knowledge of the customer, and have a good understanding of the answer to the question: “What motivates them to do business with you or not to do business with you?”
The way forward was to build the business around that information.
There are no magic bullets for companies that lack product differentiation. It requires hard work and focuses on the business when operating in those markets. The company must move its thinking, culture, and focus away from the product. You are walking out into the desert where no water exists. The product conversation will lead your company nowhere fast.
The smart thing to do is to focus on selling efficiently and gaining maximum coverage in the market. If the opportunities do appear, you need to convert them efficiently and not allow for any wastage.
If your sales force is not delivering, a lack of selling skill or negotiation skills amongst the salespeople is probably the least likely reason. Far more likely, the salespeople have developed more of a product focus and not enough of a sales focus, even down to not being accustomed to opening and closing a deal. If that has happened, it will be a sales management failure.
The right processes and accountability have not been put in place. The sales team has been allowed to settle into product conversations’ comfort, which is simpler and easier to hold with customers. There is no pressure, and it takes out the confrontation of negotiation each month for orders.
The management disciplines of a company with no real product differentiation become critical to the companies success. The discipline of keeping people focused, motivated, and working at every opportunity comes through performance management and not taking a hands-off approach typically associated with autonomy. No individual can battle the market alone, and they need even a greater level of support than those with a great product that has differentiation.
Sales managers need to learn contemporary disciplines and processes required to drive business in highly competitive marketplaces. Only with fresh thinking will changes occur for the company.
Adele Crane assists companies to understand how to drive the company forward in highly competitive markets. To discuss your particular situation, please contact our office for a confidential discussion.
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