Jan 262012
 
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The Importance of Differentiation and Adding Value

The Importance Of Differentiation And Adding Value

There are many ways to add value and establish differentiation in a given situation.  Some are just more differentiated and “valuable” than others.  Why do you think it is that the top salesperson at a company often earns more than the CEO?  It is for this very “value-added reason”.  The value-added of a top salesperson is easy to identify and quantify.  It’s how much of the company’s product or service they sold over a certain period of time.  And in many companies that are a bit more sophisticated in their measurement of value-added, it’s how much they sold AND the profitability of those sales.  In the end analysis, adding value is not just about generating sales; it’s about generating PROFITABLE sales.  The salesperson represents the vehicle for the company to monetize and capitalize on the value it adds and its (hopefully) differentiated position in the marketplace.  Keep this in mind as you’re thinking about your own value-add and differentiation scenario and strategy.

Let’s look at a few examples, to consider the range of value-adding and differentiation possibilities, as well as the implications for various types of businesses.  We’ll take a look at value-add in the context of a couple of well-known brands and industries.

Example #1:  Your Cable TV Provider

Value-add:  They provide you with connection to the outside world.  These days they provide access to TV, movies on demand, VOIP phone service, and Internet access.  The list of offerings continues to grow.

Differentiation:  They’re not highly differentiated from alternative suppliers of any of these services, thus they’re relatively commoditized and the main battlefield for competition is price.  They also sell and attempt to differentiate based on bundling offers and convenience.  Competing on price is not a strategy for long-term success, unless you’re a massive commodities trading firm.

Example #2:  Apple

Value-add:  They provide you with communication, entertainment and computing power in a stylish way, with a very user-friendly and intuitive interface.

Differentiation:  They’ve been very clever in making their brand “kool” and synonymous with creativity and self-expression.  In so doing, they have transcended computing and entertainment, which has led to their becoming one of the most highly valued and profitable companies in the world.  Their products typically are 25 to 50 percent more expensive than competing products, a difference their enthusiastic and loyal users usually don’t even blink at.

Example #3:  Boston Consulting Group

Value-add:  They provide strategy consulting to many of the biggest and most successful companies, governments and other organizations around the world.

Differentiation:  They, like the few others at the top of this industry, such as McKinsey and Bain, have a reputation for hiring only the best and the brightest.  They work with senior management and Boards of Directors and focus on high-level strategy.  They do multi-million dollar projects and play at the top of their field.  Like McKinsey and Bain, BCG is a private company, so their financials are not public, but by all accounts, their differentiation has led them to be among the most profitable and influential consulting companies in the world.

We could go on and on with examples, but you get the idea.  Either companies (and/or individuals) find a way to differentiate and add meaningful value, or they find themselves on the road to commoditization, price competition, and a struggle to maintain their profitability and ultimately, their existence in the marketplace.

Where do you as an individual, and where does your company as an organization, add value in the marketplace?  How is that differentiated from what every other “player” in the game is doing to add value?  How well have you been able to position yourself and your offerings as adding meaningful value in the marketplace? The answers to these questions are CRITICAL, because without differentiation, you have commoditization, which is not a path you want to take.

I realize that to some extent, these concepts of value-add and differentiation are “strategic thinking 101,” but what I see in my own businesses and advisory work is that too many people, even otherwise excellent CEOs, can fall into the trap of not seeing commoditization creeping in from every angle.  Most markets these days are extremely dynamic.  You need to make sure that you and your business remain dynamic as well and constantly examine ways to add more value, differentiate, and stay a step ahead of the commoditization reality.  If possible, like Apple, you want to create loyal and enthusiastic fans.  Having a connection with your customers on such an emotional level is a major step in the direction of fighting off the natural tendency toward commoditization.

I look forward to your thoughts and questions.  Please leave a comment (“response”) below or in the upper right corner of this post.

Paul Morin

paul@companyfounder.com

www.companyfounder.com

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  • I agree with you that you have to be cutting edge today to succeed. I think many find it difficult to keep up with the currents trends and do you job but it is what is needed to excel in your business.

  • Gabrielle

    Those are very important points in our life…Anyway, thanks for the great informative post here then…

  • Margaret (Peggy) Herrman

    Dear Paul, fabulous as usual. Your articles always help me sort things out. Best, Peggy and Orchid Ladies

  • John Eades

    Paul,

    Great post, you hit the nail on the head around differentiation and the value a company provides to its customers. Companies of any size should think of their products and services on a differentiation grid. Are the products and services you provide, high in customer value and high in uniqueness? If so, how long will they stay there?

    John Eades

  • Kittie Walker

    I think when you are starting a business you focus on differentiation as you try to position yourself into an existing market place. Unfortunately this focus seems to slip for a lot of companies as they start to mature and possibly become a little complacent. Great reminder that we really ought to focus on it more or we are doing ourselves and our companies a great disservice.

  • Thanks, John. The differentiation grid is an excellent approach!

  • Thanks, Peggy. I appreciate your stopping by and leaving a comment. I hope all is well with you and your businesses. Paul

  • Ruth Catchen

    Great article! I believe the idea of value added or differentiation applies to many things, including education. It is beyond providing different or special work for students. Adding value insures that a school or district provides a guaranteed and viable curriculum to its students, and in my mind this includes the flexibility to personalize learning when and where needed. This initiative includes providing the opportunity for projects of depth that do not come from a cookie cutter mold and may develop the individual talents and abilities of students. Even though companies such as Apple have carved themself a certain niche, they are constantly evolving in directions to meet consumer needs. It isn’t always about offering the best price, it can be about the most value. Time and effort offer pay back.

    I realize your intention here is to appeal to business, but those managing and administering education and educational programs must realize the same principles apply. After all, it is all about the future.

  • Agreed, Sherrie. It’s essential to survive, never mind excel these days. Differentiating yourself in the marketplace and making sure that you are adding significant value to your customers are absolutely critical to the success of any business.

  • Well said, Kittie. At the beginning of the venture, there is not choice but to differentiate and try to establish your place in the market. As time goes on though, the phenomenon you mention does tend to creep into the picture and sometimes leaves the entrepreneur a bit complacent with regards to differentiation. This is a recipe for getting blindsided, including waking up one day and realizing that your company and it’s offerings are no longer very relevant in the marketplace.

  • I could not agree with your more, Ruth. We’re at a very interesting time in the evolution of education and the system we use to ensure that our youth and adult population master the knowledge they need to compete and contribute in the future. The impact of technology on education has been profound and I think technology’s impact on how education is created and delivered will continue to morph at an even faster rate. The challenge of educators is to take all the various tools available and figure out how to optimize their deployment in the delivery of education to various constituencies. It will undoubtedly be a fascinating experiment and evolution. At all stages of this evolution, differentiation and value-add will play important roles.

  • Chat

    thanks for sharing.