The Four Ps Of Differentiation

The Four Ps of Differentiation By Dr. William R. McCleave, Jr. & Thomas P. Gale Executive summary: This article presents a model for thinking about how to differentiate a wholesale distribution company. It introduces a framework – the four Ps of Position, Pitch, Performance and Proof – that may be useful to create a plan for differentiation unique to your company and the competitive environment in which you operate. The article also outlines some of the common traits that differentiators have that contribute to their success. In all the different activities that make up a wholesale distribution business – management, sales, marketing, operations, finance, logistics, inventory management – some companies do some things a little better than their competitors and they do some things a lot better. Differentiators find ways to get beyond the daily distractions and focus on the activities that give them the edge, that differentiate them in the customer’s view. Successful differentiators are hard to imitate. They have developed unique skills or service capabilities focused on customer needs that can’t be reproduced quickly, often including in-depth knowledge and hands-on experiences about customer processes. As a result, many companies stumble when they try to imitate the competition. But companies can assess their capabilities and map out a plan for differentiation based on their unique strengths and market position. It’s impossible to provide a one-size-fits-all “cookbook” on how to differentiate your company. Only you can differentiate, based on your knowledge, experience and capabilities developed over many years. But many distributors have told us this model is useful in challenging their thinking and as a flexible tool to guide an improvement process. For that reason, the book provides self-assessment worksheets to evaluate differentiation capabilities, competitors’ capabilities, and a step-by-step process to prioritize improvement projects. Key questions To start the process of thinking about how to differentiate your company, consider these four core questions, which relate to the four pathways outlined below: 1. Do you have a big idea for differentiating your company in the current marketplace? (Position) 2. Do you deliver a well-developed and consistent message focused on real customer needs? (Pitch) 3. Have you chosen critical activities that must be performed to meet customer/supplier expectations with performance improvement goals? (Performance) 4. Do you have an effective system for validating your value contribution to customers? (Proof) How would you grade yourself on each question? Most executives have an intuitive sense for the strengths and weaknesses of the company, but may not have analyzed specific capabilities within each of these four distinct areas. While few companies give themselves straight A’s across all four pathways, differentiators are crystal clear about their core areas of strength and the value

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their customers place on these critical capabilities. Let’s examine the four pathways and the framework they provide for thinking about differentiation. Position Position is about companies choosing market space in which they can win against potential rivals using available resources over an extended timeframe. Some people call this strategy. We like to think about a company’s position in terms of a “big idea.” We believe it’s easier to focus on the specific capabilities that define what a company’s position looks like under the umbrella of the big idea than the often abstract concepts that tend to swirl around the term “strategy.” Differentiation demands that you are clear about your company’s distinct value. If you decide to differentiate from your competition, you have two choices: Either you play the same game but you play better, or you play a different game in which you define the rules. A wholesale distribution company creates a distinct position in its market by delivering special value to customers through a unique blend of products and services. The big idea is the concept that drives this value delivery system. The big idea is often articulated through a mission statement that forms part of a company’s core strategy. It is the underlying purpose for a business to exist— the company’s heart and soul. A differentiating company firmly plants this purpose within each employee and empowers each person to apply it, adapt it and grow it every day into the company’s daily activities and culture. With a big idea, a company can differentiate itself from competitors by having •

A clearer understanding of company intent for customers and employees.

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A better basis for value description.

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Better understanding of market thrust.

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Better screening of new opportunities.

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A higher level of engaged employees.

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Better management of core capabilities.

We found that differentiating companies adjust their big ideas as customer value requirements and management goals change over time. Several of the companies interviewed for this book shifted from decades of playing the same competitive game to a much different approach. They realigned their big ideas to match changing customer requirements and competitive forces. Then they adjusted their capabilities to support their “new” big ideas. Pitch Pitch is how companies start and grow relationships with their supply channel partners. It is what they promise to provide to their customers and how they communicate that promise. Every company develops and delivers messages to customers and potential customers that define how the company is perceived in the marketplace. This includes both formal and informal communication such as advertising, catalogs, product pricing, sales calls, service visits, phone conversations and deliveries. Every point of contact outside the four walls of your company represents an opportunity to differentiate.

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Many of the wholesaler-distributors we studied find strong differentiation opportunities within pitch. Differentiating wholesaler-distributors share some common traits: •

They have a consistent laser-like focus on value throughout their messaging.

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They do a better job of communicating their big idea—their unique value in the marketplace.

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They do a better job than their competitors in aligning their pitch with customer requirements, available product and service offerings and organizational capabilities.

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They do their homework about what’s important to customers and make sure they can deliver what they promise and be profitable doing it.

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They set prices based on their objectives in the marketplace. Differentiators are clear about what it means to be the low-cost provider. They align pricing with their big idea, to either be better as the low-cost provider or different as the high-value seller.

Performance Performance is how companies execute day-to-day operational activities and processes that define their ongoing relationships with customers and suppliers. Performance is the fulfillment of pitch—the way you deliver the value you promise. Differentiating companies share some performance absolutes: •

They measure their performance in key areas.

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They perform on time.

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They perform activities completely.

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They perform what they promised.

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They avoid promising activities they can’t complete.

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They continually improve performance.

Two performance capabilities for wholesale distribution companies stand above the others: human resources and financial performance. Companies weak in these two capabilities are handicapped in any attempts to differentiate. They simply spend too much time and energy correcting service mistakes, putting out fires and living from month to month to be able to focus on developing differentiation opportunities. Cost management also is a critical performance capability for wholesale distribution companies. Because savings from lowered expenses drop straight to the bottom line, companies better at managing costs consistently outperform their competition financially. Proof Proof is how companies build enduring relationships with their supply channel partners. It includes the processes of identifying, documenting and communicating the tangible value you promised to provide to your customer

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(pitch) and that you actually provided (performance). Wholesaler-distributors who take the time to measure and report their performance and verify their company’s financial or market impact on their customers’ operations create a strong competitive advantage. They differentiate markedly against competitors who take it for granted that their customers recognize the value of their day-today performance. Wholesale distribution companies that objectively prove their value to customers also significantly enhance their relationships with key suppliers. Here again, the wholesaler-distributor’s documentation differentiates the company from competitors and provides additional leverage. Suppliers as well as customers value the focus on the future that these capabilities provide. Common threads Differentiators share some common characteristics across the four Ps outlined above: •

Strong leaders. Leadership is a critical capability for a company to successfully differentiate. Our research found strong leaders, who set clear direction, empower people, get out of the way and leverage every aspect of the business.

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Entrepreneurial people. The differentiators we studied all had associates who are excited, engaged and motivated. It has nothing to do with age, and everything to do with a company’s culture, and with how employees are rewarded and recognized. The associates were aware of and constantly updated on costs, sales and profitability.

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Customer-centric focus. Differentiators find as many ways as possible to wrap their arms around customers, open feedback channels, and make customer relationships stronger and deeper. They perform at high levels across each of the four Ps. They are having fun and their customers know it!

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Process discipline. The companies researched are goal oriented and focused on results. They have systems in place to measure progress against goals and feedback loops to gather accurate data about performance.

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Leverage. The differentiators in this study leverage everything. They sweat to find nickels in cost savings, and find they add up to real dollars. They are effective managers of their internal resources. They leverage their relationships with vendors, associations, alliances and other networks to extend their core capabilities.

Many if not all of the concepts discussed here are familiar to any seasoned distribution executive. Yet as margins continue to come under fire and customers find alternate sources of supply, it’s critical for a distributor to define and prove the value provided “outside the product box.” By taking a hard look at the most productive pathways for your company’s capabilities, you can take the lead and stand apart from your competition by defining how and proving why your company is different and better. -----------xxxx-----------

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