Do you have a Differentiated Value Proposition (DVP)?

If you are in business, you would probably have a value proposition for your customers. Be it your friendly disposition, excellent customer service, proprietary software or even your high intelligence, when you have customers, you have a value proposition for them; in other words, they are willing to part with their money on you to meet a need that they have.

Yet, is yours DIFFERENTIATED? A Differentiated Value Proposition (DVP) is one that makes your product or service stand out against the competition. This is important because if it was not differentiated, then yours will be a commodity product/service, and by definition, a commodity product competes only on price. This triggers a price war that can be bruising and decimates profit margins. If this describes your business, then your focus should be in cost leadership; getting the best cost for your product or service than your competitors.

This obviously requires deep pockets. The deeper your pockets, the better the terms you can give to your suppliers, thereby getting better prices. You can also sustain a price war better, something that your competition might hesitate to start. This allows you to maintain a comfortable margin. Until the next competitor comes along.

Take a look at the last-mile fulfillment business (logistics) in Singapore. There are so many players in the market that margins are razor-thin. Yet they have still managed to eke out an existence amidst the competition. Then Amazon entered the market with its new Prime service, promising a 2-hour delivery time, prompting a frenzied search for fulfillment service. Since there is a general shortage of delivery drivers in Singapore, they are now looking to adjacent industries like taxi and private-hire drivers, to meet the demand. Until last week, the Land Transport Authority (LTA) has disallowed passenger-carrying drivers to carry parcels and make deliveries. However, they made an about-turn and mentioned that they might look to relax this constraint, thereby dramatically increasing the supply of delivery vehicles, further crimping incumbents' margins. Would your cost leadership help here? Unfortunately, you cannot cut your way to greatness. Because the playing field is now no longer level, incumbents will always feel the wrath of disruption and if they don't have the wherewithal to stomach the change, and the means to protect their precious margin, they will be out in the cold before they can even say "Jack Flash!"

So, if you don't have a differentiated value proposition, you are a sitting duck.

Sources of Differentiated Value

So now that we have made the case that ALL businesses need to have a differentiated value proposition, let us first look at the sources of differentiation:

A. proprietary technology

If you have an unassailable proprietary technology that offers a product or service that no one can, you are in prime differentiated position. However, there are many ways to circumvent even a patent; and even if your patent is unassailable, being locked up in a legal battle that will see your coffers depleted may well be a strategy to unbind the patent. There have been many instances over the past 100 years where patents failed to protect the originator. Hence, even if you have strong technology, you need to have strong execution.

B. strong execution

A good idea is only good if you can execute it. If possession is nine-tenths of the law, then execution is nine-point-five-tenths of business success. A good idea poorly executed is worse than an average idea excellently executed. This is because your whole value chain within which your execution resides contains many moving parts where you can leave money on the table. If you are leaking in every aspect of the value chain, chances are you will crash-and-burn by your own accord. You don't even need competition to do that. However, if you are able to shore up all these leakages, you will probably be in an unassailable position, offering you key differentiated value.

C. few competitors - within a well defined niche

Some people talk about a niche like it is the plague. Apart from being associated with the dead, many niches also don't have a large customer base; hence there is a limited scale. Yet, if you owned that niche and all the customers there, you can actually earn a very decent margin. You won't have to work as hard as if the market was super-crowded. This is the reason why startups need to define their niche clearly and carefully. They need to be able to identify the white space in a larger market, so that these customers are adequately serviced. For example, the private hire car space is now quite crowded and the number of private hire cars has surpassed the number of taxis in Singapore! But if you notice, these private hire cars are not adequately fitted to carry babies and infants. Not only are they violating traffic laws by carrying infants outside of a proper seat, they are risking the lives of these precious babies. So if there is a mummy-friendly car-hire service fully equipped with not one, but two baby carriers, suddenly, the demand for this service will skyrocket. And if one makes the barrier to entry even higher - by being driven by, say, a mummy - then the niche can be lucrative! Yes the market is smaller, but would you like to have 0.1% of a $100,000,000 market, or 80% of a $1,000,000 market? Yeah, me too - provided you said 80% of the $1M market!

D. expert, applicable knowledge

If you have uncovered the way to turn straw to gold, and only you have that knowledge, boy will you be in such great demand! Such expert knowledge is only valuable if it is both applicable and replicable. So if you have demonstrable expert knowledge, you will be able to offer a value to your customers that no one can! Of course that is provided that what you know is valuable to your customers, in the first place! If not, that is not a problem; just go out there and find the right customers! Everyone needs something, and they usually congregate at some proxy network. Find that and offer your value to them and see the demand sky rocket!

What you should now do if you don't have a differentiate value proposition?

So now you know you don't have a differentiated value proposition. Don't panic. You can still create that differentiation. Here is what you need to do...

(1) understand your customer intimately

Build your Customer Empathy Map. Do a Customer Journey Map. See how they are working with your AND your competitors' products. Understand the Jobs to be Done, and the Pain and Gain points. The more you know about your customer, or potential customer, the better you will be at identifying the pain points and how you can meet them.