To Differentiate, Leverage Your Customer's View of Fair Value
(November 4, 2011)
I hear a lot of questions these days about how to differentiate in a weak but highly competitive market. The challenge affects clients from both ends of the spectrum—those selling premium high-end solutions with high costs, and those whose solutions are regarded as commodities.
When I ask what they are doing now to get their customers’ attention, they tell me they are offering price discounts, "selling the value" to justify the pricing, or offering value-added services or features the customer doesn’t pay for. Some of these strategies are successful in the short run, but often at the cost of smaller margins and lowered profitability.
I’d like to suggest a whole different way of looking at value. Each customer enters into a decision-making process with certain ideas about what constitutes fair value for their situation. And their ideas may not be the same as yours. When you push a premium solution and try to justify the price based on your high-end features and performance, you may be speaking with a customer who doesn’t really want or need all the bells and whistles. Fair value, for a customer, is the point at which price and performance intersect to exactly meet their requirements. Understanding what each customer specifically requires on each dimension allows you to adapt your offering to meet those specifications. For a customer, performance may refer to "speeds and feeds"—how fast do they need the equipment or software to be? Or it may be a matter of quality—do they need the highest possible level of quality? Or in their environment, can they work with slightly lower quality in a component or do without a feature? Just as consumers are often satisfied with a lesser brand for a lower cost, so you may have customers who are looking for a solution that will suffice, at the right price, and are not in the market for the top-of-the-line, more expensive solution. An adaptation for these customers may be unbundling to offer a satisfactory solution at the right price.
For either premium or commodity customers, think about offering service and options based on their whole experience with the solution—from when they first shop for the solution, to when they make the purchase, then install and use it, and finally dispose of, update, or replace it. For example, you might be able to help them with financial arrangements as they make the purchase, such as a lease agreement that is suited to their specific situation. Or you might offer to help solve problems at the stage where they are installing and using your solution. The important thing is to improve the performance side of the fair value equation without adding a lot of cost to yourself or the customer.
In this view, differentiation is based not so much on the features of your solution, but on creating an offering that is spot-on with the customer's view of fair value—the right performance for the right price. And you can enhance the customer's view of value by helping solve a problem or meet a need as the customer enters into the process of purchasing and using your solution.
What have you tried to differentiate? What have been the results?
What kinds of discovery questions have you asked to identify your customers' views on what constitutes value for them? Have you been able to get good information on this?
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