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Fighting the Perception of Commodity.
By Rick Johnson
Thursday, 10th May 2007
 
How do you find your value proposition when everything you do and everything you sell seems to border on being a commodity because everybody is trying to do the same thing to create competitive advantage?

"Oh, but we're different. We sell our World Class Service."

Right ……………………….

How many distributors do you know that don't say they have world class service. Many say that servicing the customer is their core competency. If they truly do have world class service, service is not their core competency it's what they are doing to create and maintain that level of service that is their true core competency.

That being said, finding your value propositions in the midst of identifying your core competence can become quite difficult. A widget is a widget no matter where you buy it. Isn't it? Why should the customer pay more to buy it from you?

That's the critical question. What value do you provide that makes your widget different, your company different, you personally different?  If the answer to those questions solve a problem for your customer, create opportunity for profit for your customer or provides improved efficiencies then you may have found your value proposition.

Put some real thought into what you are actually doing for your customers. A fellow NSA colleague likes to say  "Kodak doesn't sell film – they sell magic moments and BMW doesn't sell cars – you buy a "Driving Experience".  You need to think about your business and what you really do for your customers in those terms.

The Commodity Perception

If you can't separate features and benefits from the real value you create for your customers, you will not overcome the "Commodity Perception". Remember, if you can't overcome the commodity perception, then price becomes the major determining factor your customer will use in his buying decision.  On the other hand, if you can identify your real value propositions and make them clear to your customers by providing solutions, price is rarely an issue.

Value added must become not only a common term but it must become engrained in your sales culture. Every decision you make should consider the question WIIFMC? (What's in it for my customer)

Take a good look at your own business and at your competitors. What do you offer that adds value to what you sell? Ideally, it will be added value that your competitors cannot easily duplicate in their own offerings, and it will not add to the cost of the basic product or service. It will be based on your true core competencies.

What is a Core Competency?

This is one of the more confusing terms used in wholesale distribution today. The reason it is confusing is simply because it is very difficult to really identify exactly what your company's core competency is. If you don't struggle with that, congratulations, you are in the minority.

A core competency is something that a company can do exceptionally well and that meets the following three conditions specified by Hamel and Prahalad (1990):

  • It provides customer benefits and is valued by the customer
  • It is hard and expensive for competitors to imitate
  • It can be   leveraged widely across many products and markets.
  • A core competency can take various forms, including technical/subject matter know how, a reliable process, and/or close relationships with customers and suppliers (Mascarenhas et al. 1998). It may also include product development or culture such as employee dedication. It can include tribal knowledge.
Coyne, Hall, and Clifford (1997) proposed that "a core competence is a combination of complementary skills and knowledge bases embedded in a group or team that results in the ability to execute one or more critical processes to a world class standard." So—does your skill, knowledge, system, relationships or process represent your core competencies?

The answer to this question lies in the results produced by that process, that structure, that technology or those skills and relationship equity. The product or service must be perceived to be superior to the competition by the customer – not you.

The difference between "Core Competency and Value Proposition" simply stated is that your core competency is what creates your value proposition and your value proposition is what creates your competitive advantage.

"Perceived value drives customer expectations and performance value drives customer satisfaction."

It may require a bit of thought and effort on your part to identify your core competencies and develop value-added relationships for your customers, but it will create competitive advantage in your  market. It may eventually mean the difference between keeping and losing valued customers when someone inevitably offers to sell a product  like yours at a lower price, but without added value.

How Do We Sell Our Value Proposition?

Separate selling from problem solving

  • Take all of your industry experience and knowledge to understand the customers need
  • Present alternative solutions—define your value propositions in terms of WIIFTC and let the customer decide
  • Apply your knowledge and experience to the customer's pain as if it was your company.
  • Value can be added through process, technical support, design assistance, inventory management, cost effectiveness, training and leveraging your core competencies.
However, to create real competitive advantage you must have a sales force that understands and executes best practices that focus on profitable growth and increased market share. That does not mean that every sales person has to be a super star but it does mean that your sales people have to understand value added, your value propositions and be able to teach the customer the difference between price and cost.

Answer the following questions  as thought stimulators.

1. Can you educate the difference between price vs. cost? What makes the low price –high cost?
2. How committed are you to your industry?
3. How well do you know your customers objectives
4. How adept are you at identifying pain
5. Are you more concerned with your employer's success than their own? Your customer's success?
6. How well do you accept personal responsibility for failures?
7. Do you know the five largest customers of their five largest customers?
8.  What are the 3 largest sources of pain in their lives?
9.  What are your customers' key profit and growth drivers?
10. What are you doing with that knowledge?
11. How would the customer describe your efforts to improve their business?

Discuss these questions with your sales manager in a brain storming session or during one on one coaching sessions and you may uncover opportunity for improved results.

Rick Johnson, expert speaker, wholesale distribution's "Leadership Strategist", founder of CEO Strategist, LLC a firm that helps clients create and maintain competitive advantage. Need a speaker for your next event, E-mail rick@ceostrategist.com.  Don't forget to check out the Lead Wolf Series that can help you put more profit into your business. www.ceostrategist.com
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