Peter Cohan has a very insightful new article up on “Stunningly Awful vs. Truly Terrific Competitive Differentiation – What, When, and How” What follows are some excerpts with additional commentary but the entire article is worth reading.
What Is Competitive Differentiation?
Most vendors define this as “capabilities that we have or do better than our competition”. Pretty straightforward, right? But do customers share this definition? Likely not.
Customers are looking for solutions that fit their perception of their current and expected future needs. A vendor with capabilities the meets these current and future needs exactly is clearly the best choice, everything else being equal (such as price).
So you are faced with assessing current and future needs before you start to demo: you need to diagnose before you can prescribe. The better choice is to withdraw or recommend another alternative if a prospect has one or more requirements that you are clearly unable to satisfy and you know that at least competitor can. Always include the prospects current system (“status quo”) as an alternative: if your offering represents a downgrade on or more critical functions it’s better to withdraw early and in good order than invest a lot of effort only to come up short much later and with loss of time and credibility.
With that in mind, a vendor who seeks to “differentiate” by simply presenting capabilities that another vendor lacks is at risk. What if the customer doesn’t see the need for these additional capabilities? What if they don’t care or, worse, can’t use them? Then these additional capabilities become a liability.
For example, let’s say you are shopping for a new set of kitchen knives. At the store, you are looking at several knife sets and the sales person steers you to one particular set of 10 knives, saying, “This set is better because it has 10 knives – one more than most – plus a sharpener, so you can keep all of your knives razor-sharp.” The other sets on display only have nine knives.
Sounds like a win, right? However, it turns out that your knife block only has room for 9 knives and no place for a sharpener. You are concerned that the extra knife and sharpener will end up rattling around in a drawer – and possibly be a hazard. Differentiation has occurred, but not positive differentiation! The larger knife set is perceived as “too much” and possibly “too expensive” (if it costs more than the set of 9) or “cheap” if the price is the same as the set of 9, since the perception will likely be that each knife individually is worth less.
This is one way for startups to surprise incumbents and larger fuller featured competitors. If the prospect is not using or does not consider certain features important then you can win and leave your competitors muttering “but we had more features…” Peter also highlights the need for a clear assessment of needs before you start to demo: any “extra” features are likely to make your system appear too complicated or too expensive (more features must cost more in most prospects’ minds).
Positive feature- or capability-based differentiation only takes place when the customer agrees that the capability is beneficial in their specific situation – when the customer visualizes using the capability sufficiently often and/or the problem the capability addresses is sufficiently important to solve. Otherwise, the extra features and capabilities are perceived as making the offering too complicated or too expensive: “We don’t need the Cadillac; we just want the economy car version…”
Do Discovery with a bias towards potentially differentiating capabilities you offer (and your competition lacks or doesn’t do as well), such that those capabilities become part of the customer’s vision of a solution.
During Discovery, you might say, “Some of the other organizations we’ve worked with that had situations very similar to what you’ve outlined so far, found that the ability to set alerts based on approaching certain thresholds enabled them to take action before problems grew large – and they were able to save hundreds of thousands of dollars as a result. Is this something you might also find useful in your practice?”
Your customer responds, “Why yes, that sounds really great – and I can see how we could use that. Wish we’d had it before!”
This capability has now become a Specific Capability desired by your customer – and you can prepare and plan to demonstrate it accordingly. Since your competition can’t offer the capability, but only the simple alerts, you have successfully positively differentiated.
- Similarity: Your first step is to establish a relationship between your current prospect and other organizations – particularly those that are perceived by the prospect as being similar to them.
- Capability: You describe the capability itself and its advantages and potential benefits.
- Reward: You describe what benefits other, similar organizations have realized through the use of the capability.
- Verify: test to see if this capability also sounds interesting or particularly useful to the customer. If it does, you have successfully and positively differentiated.
This approach is also a good idea during the demo: establish that they are interested in a capability before showing it.
Peter Cohan’s Great Demo workshop has some seats left on Oct 9-10 in San Jose. This course is most useful for folks developing B2B software products. It’s normally only offered privately on-site at firms like Microsoft, SAS, VMWare, etc… Peter Cohan is also a mentor at StartX and will offer some specific tactics for early stage firms as well.
Great Demo: Core Seminar & Advanced Topics
October 9 & 10, 2013
Where: Moorpark Hotel, 4241 Moorpark Ave, San Jose CA 95129
For out of town attendees: The Moorpark is located 400 feet from the Saratoga Ave exit on Hwy 280, about 7 miles from San Jose Airport and 35 miles from San Francisco Airport Hotels Near Great Demo! Workshop