Last Updated Oct 27, 2008 1:38 PM EDT
Back in the day, when you developed a cool product folks wanted, they would come ... and keep on coming. Global competition had yet to become a dagger-sized thorn in the side of American businesses.
There weren't 942 brands of energy drinks, nutrition bars, vitamin supplements, and all that other crap. There weren't 196 resellers for every SKU and part number known to mankind.
These days, if you make it "they" may still come, but "they" also includes your competitors. Now, more than ever, businesses face a challenge to differentiate in order to gain market share, grow sales, and maintain profit margins.
Somewhere along the line I learned about a business tool called value proposition. Value proposition is the same as competitive differentiation. It's the reason why customers would buy one company's product or service as opposed to another's.
If you can say it with a straight face and your customers and employees agree it's true, then you're in business. If not, you're in big trouble. And if you can't come up with one, you will likely suffer the slow, agonizing death of market share and profit margin erosion.
Sounds simple, right? Well, it's not. But it is an effective acid test for determining if your company is on the right track and a great tool for testing and iterating business strategy. To see how it works in the real world, let's take a look at a company that began life in Austin, Texas as PC's Limited. Now we just call it Dell.
Example: Dell Inc.
From the beginning, founder and CEO Michael Dell's value proposition was to offer customers custom-built IBM-compatible PCs direct from the manufacturer and for less than brand name suppliers like IBM and Compaq.
Much has changed since then. The competitors have different names, the scale is orders of magnitude larger, and Dell is itself a brand name. But one thing hasn't changed, Dell's value proposition.
To maintain that value proposition while meeting aggressive growth and profitability targets in the face of ever-increasing competition, Dell implemented a number of unique and innovative strategies:
- Hitched its wagon to Intel, essentially outsourcing R&D to keep development costs down and ensure it always has the latest and greatest technology.
- Ground-breaking just-in-time (JIT) and Supply Chain Management (SCM) systems minimize inventory costs and achieve aggressive on-time-delivery targets.
- Expansion from desktop PCs into notebooks, servers, storage, networking, peripherals, and software - in part via acquisition - to compete with bigger rivals like HP and IBM.
- Aggressively embraced Internet sales and multi-tiered support.
There are few ways to get to the top and lots of ways to fail. Competitive differentiation or value proposition, whatever you call it, won't guarantee success. But you can't get there without it.
(Photo courtesy of ZDNET: http://blogs.zdnet.com/BTL/?p=6205)