Seven things you should know about differentiation
How to improve revenue and profitability without adding more resources
Author
The article was originally co-authored by Thomas Børve.
Globalisation and technological development drive commoditisation; this combined with increased competition puts pressure on prices and profitability.
We have identified seven characteristics of companies that grow more than market average by means of differentiation. The challenge of many companies is to increase revenue and profitability with the constraint of keeping investments and costs at the same level or even lower. One way to achieve this is by increasing competitiveness through differentiation.
Globalisation and technological development drive commoditisation; this combined with increased com petition puts pressure on prices and profitability. The challenge of many companies is to increase revenue and profitability with the constraint of keeping investments and costs at the same level or even lower than today.
One way to achieve this is by increas ing competitiveness through differentiation. Creating a differentiated market position and thereby the ability to charge premium price over competition is only possible by improving the customers’ perception of the value delivered to them. Our experience is that developing, communicating and delivering a superior value proposition (see model “What is a value proposition?”) requires a systemic approach involving the entire commercial organisation. Isolated initiatives in Marketing and Sales will only have small and short term effect.
Over the last years, Implement Consulting Group has worked with commercial executives from Nordic companies that have performed well above their peers as well as with those that have not. What characterises companies which grow more than industry average is their ability to show remarkable results in terms of more qualified leads, increased order sizes, improved win rates and reduced cycle lengths. We have found that these companies have succeeded with differentiation by working systematically with the following seven elements:
- They truly understand the business of their customers.They possess a detailed understanding of both commercial and technical challenges at segment as well as customer level.
- They articulate clear value propositions. They have clearly defined how their offerings differentiate from competition in the market and how they add value.
- They know who they want to work for. They have a clear segmentation and prioritisation which have direct impact on how and what they offer – as well as on how they allocate sales and marketing resources.
- They know how to create value for each customer and stakeholder. Key customers and stakeholders within their focus segments are defined and aligned with customer- and stakeholder-specific value propositions.
- They have aligned sales and marketing efforts. Sales and Marketing have in-depth understanding of each other’s roles, responsibilities and value creation.
- They are able to challenge customers and stimulate demand. They challenge customers with insights, engage customers in evaluation of offerings and disengage from opportunities when needed.
- They have strong commercial leadership. Leaders use seniority to open doors, take interest in and challenge on strategically important opportunities
Understand your customers and develop a unique value proposition
Understand the business of your customers
You need a solid understanding of the operational and technical challenges of your customers – and how these affect their business. Seek to understand how value is created as well as the negative impact of the existing challenges. This will lead to a better understanding of behaviour, needs and buying criteria. Obtain insight in terms of what a great customer experience is, and what value different players on the market seek to provide. Get an understanding of the expected development in customers’ industry and future demand. Find out how this will influence the buying criteria going forward. Start by analysing relevant industry dynamics, market trends as well as what drives value for your customers.
At a more operational level, you need to understand what key stakeholders in relevant functions are concerned about. Understand what counts and preoccupies them in their daily work. Do you understand what your key stakeholders’ true worries are? Systematically observe and gain insight into the stakeholders’ fears, frustrations and obstacles in relation to reaching their targets.
Articulate clear value propositions
Use the above insight to create and improve the power and uniqueness of your value propositions. Challenge yourself and your team on how your business is configured, how your offerings are designed and how you might change the game in your industry.
Look for unique differentiators within the different elements of your solutions. What are the offerings and services that not only create superior value for your customers but also are unique? Start by assessing your most mature customers. What do they dream of? Often, significant differentiators and potential “game changers” are found in the way offerings are communicated, sold or delivered – and not in the core product itself.
Example
Maersk Line – changing the game with Daily Maersk
The challenge
In 2009, the shipping industry was facing increasing price pressure and a demand for higher reliability. In the industry on average, only 1 in 2 containers arrived on time. Customers with explicit needs for having goods delivered on time had compensated for the lack of reliability by building expensive safety stocks at critical locations. This resulted in a negative impact on the customers’ supply chain efficiency, impacting cash flows and profitability.
Differentiation initiatives
In the spring of 2010, Maersk Line initiated an interview process with selected customers in order to gain insight into the problem. Maersk Line worked from a hypothesis of being able to perform daily shipments and deliver 100% reliability on the Asia Europe trade line. Analysis showed that daily shipments and increased reliability could potentially mean up to a 50% inventory reduction and up to 500 USD saved per container for customers. Many customers indicated that they were prepared to pay higher rates per container as a direct con sequence of being able to cut down safety stocks.
The potential increase in rates supported the Maersk Line business case of building a network that would deliver daily shipments and 100% reliability – and the promise was backed up with monetary compensation.
Impact
The solution was designed and launched in the summer of 2011 and has proven very successful. Although “absolute reliability” was not achieved (only 98%), 76% of 175 surveyed customers acknowledge the benefits from Daily Maersk and find that their transportation chain has become more efficient. 60% of surveyed customers have directly saved on logistics costs.
“We’ve changed, and as a result, customers are seeing their business’ supply chain become more efficient, and we have been able to demonstrate the value in USD terms as a direct effect of using Daily Maersk”. Eric B. Williams, Head of Global Sales, Maersk Line.
“Daily Maersk (service reliability) has enabled us to remove a shipping buffer of up to 5 days that we had built into our lead time on the Asia-Europe route to account for the delays we had previously experienced. Having a date for when containers will be available for delivery has improved our inbound planning but also provides flexibility if they arrive early and cargo is required urgently”. Head of International Logistics, Maersk Line customer, UK.
Choose your focus customers and align your communication
Know who you want to work for
Define how you prioritise your sales and marketing resources. Your prioritisation should take its point of departure in your market segmentation and lead to a management decision on how sales and marketing resources should be allocated.
Segments are prioritised based on an assessment of where your different value propositions will create most value combined with an assessment of the market attractiveness and growth potential within each segment. Based on these analyses, you choose towards which segments and customers sales and marketing resources should be allocated. The specific allocation of sales and marketing resources will be based on an assessment of which sales and marketing tools will have most impact and how your value proposition is communicated most efficiently.
Know how to create value for each customer and stakeholder
Define, prove and communicate the value you create for each of your prioritised segments, customers and even stakeholders. It is essential that your entire commercial organisation has a common understanding of the value you bring and is able to prove and communicate this value at customer and stakeholder level.
Create awareness, stimulate demand and generate leads from focus segments by pushing tailored messages in relevant media. Assist Sales in having the right conversations with the relevant stakeholders by creating stakeholder-specific sales tools. The tools should be execution-oriented and contain specific stakeholder-relevant content so that they add value to Sales in generating interest and proving the potential value for specific stakeholders.
Be sure to consistently respect the choice of focus segments and implement the necessary changes. You will experience dramatic and difficult dilemmas in the process of testing new marketing messages, getting Marketing more involved in sales and implementing new tools in the sales process.
Example
Crawford solutions – outperforming market growth
The challenge
Crawford Solutions (manufacturer of industrial doors) was facing increasing competition and, consequently, increasing price pressure. In a brief interview process with the purpose of identifying typical customer challenges, they found out that one of the largest challenges for food and drink processing companies was the risk of the temperature in their production or stock increasing above a certain level. In case of a too high temperature, products that were extremely costly would have to be destroyed.
If a significant lower downtime compared to competitors could be proven, they could prove a reduced risk of temperature increase.
Differentiation initiatives
Based on this insight, offerings and services were defined which would create most value for customers. A communication package was created towards food and drink processing companies. The objective was to generate leads through marketing campaigns with advertisements in relevant industry magazines focusing on the negative consequences of downtime on the doors such as higher production costs and lower customer satisfaction, leading to reduced turnover.
The communication package contained information to the sales people about industry trends and challenges as well as tools for sales people to identify and calculate the actual cost of potential temperature increases caused by failure in the closing mechanism of the doors. In order to keep the cost of sales to a minimum, the tools were designed so that the customers were able to use them themselves, which enabled the sales people to focus on the conclusions in their dialogue with the customer and less on the calculations.
Impact
A significant increase in market share within food and drink processing companies. Combined with a reduction in cost of sales due to a more clear prioritisation of sales and marketing resources, this has led to higher profitability.
“Working with segment-specific communication addressing customers’ specific challenges changed the dialogue with customers and made our strengths more clear”. Christophe Winling, VP Sales & Marketing, Crawford Group (part of ASSA ABLOY Entrance Systems)
Integrate functions and engage with customers
Align your sales and marketing efforts
Lacking cooperation between Marketing and Sales is often blocking differentiation initiatives. One of the main reasons is the embedded differences in their objectives and success criteria. In order to align the efforts of the two functions, you should gather the teams around a common objective supported by aligned processes with clear roles and responsibilities. Make Marketing responsible for gaining structured insight into what drives value within your focus segments and have them support Sales in developing customerspecific value propositions through practical sales tools for different steps in the sales process.
Make Sales responsible for creating interest among key stakeholders within the focus segments, challenge their current view, proving the value of your solutions and qualifying opportunities to ensure that time is spent effectively.
Challenge customers and stimulate demand
You should help your sales people avoid the typical product presentations and demonstrations – and instead enable them to engage in challenging the customer’s current views based on industry and segment insight. Your sales people should work towards getting the customer engaged in a discussion of current process inefficiencies and potential business impact as well as helping the customer assess how things could be done differently.
Along meetings with the traditional stakeholders, your sales people should be encouraged to understand the organisational structure of your focus customers and support other key stakeholders in realising their personal targets.
Ensure strong commercial leadership
Your commercial leader team is key. You need to have them support and invest heavily in realising the differentiation strategy. Sales management needs to demonstrate that they are able to perform revenuegenerating activities themselves – and engage in coaching around operational tasks.
Sales management should spend a majority of their time coaching on specific opportunities and help prove and communicate your exact value creation. Marketing management needs to be involved in developing the necessary industry insight and relevant tools and drive the cooperation with Sales.
The dialogue in your commercial leadership team should be structured around a common sales and marketing process and be based on input from customers. The process should be designed to help generate market insights and ensure that the resource prioritisation is implemented. It should ensure maintenance of tools and content and help Sales objectively qualify potential opportunities as well as prove your value creation towards your customers.
Example
Orsted (DONG Energy) – Changing the conventional ways of cooperating
The challenge
was facing increasing competition and commoditisation of their core products, leading to increasing pressure on prices. They had embarked on positioning a new differentiated concept targeted at a specific segment and key stake holders. However, they knew that their traditional way of selling would not work for this new concept.
Differentiation initiatives
The company brought together Marketing, Sales, energy consultants and partnership managers in order to define a new way of working together. A task force collectively created a common set of objectives in terms of sales volume and together defined relevant target segments as well as created a new sales approach:
- A ”onepager” with key issues of relevance to different stakeholders in each key focus segment helping sales people obtain relevant in sights about each of the key segments and stakeholders
before engaging in dialogue. - Tailored manuscripts including success stories from pilots with emphasis on key business results generated with other companies helping Sales create interest at first point of contact.
- Interview guides helping Sales obtain the relevant information from key people in the customer organisation in order to build a customer-specific value proposition.
- Template for generating a customer-specific value proposition based on obtained insights.
Next step
The aim of this article has been to show how to increase competitiveness by working systematically with differentiation.
A practical next step for you could be to direct the following questions to your commercial team:
- What are the most critical business challenges for our segments and customers?
- How do our solutions add value, and how do they differentiate from those of our competitors?
- To what type of customers are our solutions most relevant?
- What is the customers’ perception of our solutions and the value we create – and why?
- What are our key differentiation elements today and going forward?
- How can we challenge our key customers constructively on the way they work today?
- What are the objectives of Marketing and Sales, respectively?
- What does our commercial leadership do on a daily basis to drive competitiveness?
This article is also written by Thomas Børve.
