Rethinking Value

I was having a fascinating conversation with a good friend and client. We were talking about the challenges his people had in articulating value and differentiation. The products they sell had become highly commoditized. In the past, where there had been significant product based differentiation, over time, with more competition and market changes, everty thing changed. Today, there is virtually no differentiation between products offered by his company and those offered by the competition. All had pretty much the same specifications, features, functions. (We see this in virtually every product. For example PCs, CRM, ERP (at least the traditional major vendors), even many professional services.)

His people felt they had only one tool in their arsenal, price. As bad as this is, as with many commoditized products, due to supply chain issues, prices his company was paying for products/materials was changing on almost a daily basis. A good example is oil. We see pricing from the producers changing very frequently, so if we are selling products where oil is a major component (or the product), pricing becomes very complex and competing on price becomes untenable.

We started to talk about how his team could present and defend value, minimizing the need to discounting.

As these conversations usually start, he was tempted to jump to the product. “What features and capabilities of the product are different than our competitors?” But everyone had plowed that ground before. There was no real differentiation, the products their competitors sold were exactly the same as theirs. Everyone sourced the products from the same suppliers.

So we decided to set the product aside, where could we find differentiation? Where could we communicate and defend value created with customers, that was unique to his company’s offerings and differentiated from the alternatives? How could we articulate or create value, that minimize the need for discounting in a market characterized by pricing turbulence within the supply chain?

As we started brainstorming, we started discovering all sorts of ideas that created distinctive value and differentiation—and none of them had anything to do with the product.

Just a short list:

• We could create a very simplified process for customer procurement, reducing the complexity and cost of acquiring the product. One of the things was that they sold a very wide line of commoditized products. Classically, customer procurement processes looked at, negotiated, and ordered products individually. We could reduce the time, cost, complexity of this process by aggregating a number of products into one PO. We could help the procurement organization cut down on their work, efforts, and costs.
• Likewise there were a lot of things in logistics and supply chain management that normally take time, effort, and cost on the part of the customer. What if we offloaded that, reducing the work the customer had to do, reducing their costs, and making it simpler to them.
• Along with that, we looked at automatic restocking, so the customer didn’t have to worry about tracking consumption and reordering. My friend’s company could take the responsibility for monitoring consumption and order lead times (since these were highly variable), making sure their customers never ran out.

We came up with a number of other ideas, each of which had nothing to do with the product, but focused more on simplifying the customer process and costs of acquiring and using the products.

Anyone who has sold commoditized products, knows these are pretty standard ways of creating value and differentiation–making the value less about the product, but all about the process of buying and using the offering.

But we went further in our discussion. We started talking about how we could help customers using these products differentiate their what they were doing for their customers, enabling them to create value for their customers. We came up with a number of very simple ideas, that helped their customers better serve their own customers. Things like:

• Colors, there could be confusion with the products the customer bought. There were different sizes, but they were all the same color. As a result, there was a lot of waste when the wrong size was selected, or it took a few seconds more time to check for the right size. If we offered the products in colors, we could eliminate that inconvenience.
• We realized we could make changes in packaging, increasing the convenience and selections customer might buy. Figuratively, the industry offered products in a “one size fits all” approach, we realized their customers and their customers’ customers would want to choose and we could offer them that flexibility.
• We started exploring longer term changes. We realized that small changes in the formulation of the product created different capabilities important to the customer. And these changes, were important to their customers and their customers’ customers.

We brainstormed a number of other ideas, coming up with some his team could implement immediately and some that might take a longer time to put in place.

Finally, we looked a t the customer buying process (as opposed to the procurement process). While these were commoditized products, buying had actually turned quite complex. The issues customers faced were less around product selection, but more around market dynamics There were numerous supply chain issues that impacted cost and availability. There were huge fluctuations in demand from their customers’ customers. The process had shifted from a simple, transactional buying process, to one filled with uncertainty and risk.

We started talking about what Bill’s sales team could do to help the customer feel less discomfort around what was going on in the markets. How they could help the customers become more confident in their ability to make good decisions and manage the risk.

Bill and his team have some work to do. But they now realize the majority of the value they create had nothing to do with the product they sold.

Too often, we focus too much on our product, we tout features, functions, feeds, speeds. We talk about how different and superior our products are from the competition. We focus on the value our customers get from the purchase and implementation of our product.

So much of our go to market/selling strategies are driven by this. We’ve even invented an acronym for this, PLG, product led growth.

But there are problems with this. Product based differentiation and value creation is never sustainable. Markets change, competition changes, new offerings that have different capabilities surpass those of our products. Over time, virtually every highly differentiated product becomes commoditized.

So we have to think about differentiation and value creation differently. We have to look beyond the product itself. Those things that surround use of the product, those things that impact the results customers achieve through with these products, those things that impact the customers’ ability to serve their own customers, those things that impact the customer decision confidence in buying, and those things that make buying much easier.

As we look at it, the majority of the value we create has little to do with the product itself, but all these things that surround the product.

But what happens, if we have a hot product, if we have a PLG strategy. and the luxury, however transitory, of product superiority and value differentiation? We can further distance ourselves from our competitors, we can dramatically enhance our value and differentiation. We just need to look beyond the product. We have to recognize the product itself is just part of the value we create in working with our customers.

Doing this drives much greater value for our customers, improves our ability to win, and should minimize/eliminate the need for any kind of discounting.

Afterword: I know I’ll ruffle a lot of feathers with this, but the places I look for the greatest innovation in go to market/selling strategies is with those organizations that are commoditized. Sales leaders/people in these segments realize that value creation, winning, and growth cannot be based on hot products. They realize the value is all the stuff that sits outside the product and solution.

Those who have the luxury of product based differentiation should learn from these organizations, adding to their ability to create value with their customers.