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.
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