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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.

(2) know what your competitors are doing

To be differentiated means you need to be different (duh!) So that means you need to know what your competitors are doing, how they are meeting your customers' needs, and what is lacking. You also need to know their financial position and their capabilities because if you are going after their current customers, you also need to be prepared for a retaliation. So long as you can weather that through your differentiated value, go for it! If not, your value is not differentiated, and you need to go deep diving again!

(3) position your solution to overcome pain points or accentuate gain points

No one is going to spend good money on you unless you are alleviating some pain - or delivering some great gain points. So after you have uncovered what irks your customers - or what makes them tick - then tweak your product or service to do just that!

(4) cast the net wide

One of the biggest fallacies in business is the thinking that "If we build it, they will come." That cannot be furthest from the truth. Not only must you build it, you need to invite them in, make them stay and stay and stay. If you cannot demonstrate why they should remain with you, and continue to spend their time and money on you, you will lose them to your competitor. Or worse, they will simply live with the pain!

(5) exceed their expectations

There is a reason why they say that client acquisition is very expensive. This is because you not only need to get them to listen to you, you need to get them to spend. And that expenditure needs to be small enough to overcome any apprehension, yet high enough to ensure that you can roll that expenditure. Not easy. Yet while you are doing all that, you still need to exceed their expectations! The only way they will spend more time and money on you is when you can offer them more than they expected for their expenditure. Do you know why high-end eating establishments can still pull in patrons while other lesser establishments are struggling? This is because they exceed the expectations of their patrons. So now you know why they serve complimentary amuse bouche, right? Exceed expectations!

(6) don't count the costs

Exceptional customer service is costly, but not as much as the cost of acquisition. So that is still a net-positive-margin business activity. And you cannot count the costs, because the return is more than the costs. When you are playing the Differentiated Value Proposition game, you need to know that it is not a cost leader strategy; and it does not need to be because the returns far outweigh the costs. So don't be penny wise pound foolish. Don't count your chips while you are at the table. There will be plenty of time to do that! (a la The Gambler)

(7) understand the geo-economic situation

You cannot ignore geo-economic and geo-political changes. As we speak, large companies in Singapore (GLC, no less!) are moving all their database requirements onto the cloud, and their maintenance in India. What does that mean to the database administrator in Singapore? Not only will you find that your market is shrinking, you are becoming redundant! So while you understand your differentiated value proposition, understand the total geo-economic situation and position yourself to take advantage of shifts in business!

So, do you have a Differentiated Value Proposition?

You will have come to the conclusion that the Differentiate Value Proposition is a transient position. You can have one today and then have that taken away from you tomorrow. That is both a good thing and a bad one. It is good if you currently don't have one, but it is not if you do. You know that someone else will come into the market, disrupt it, and then snatch the value from you. So what should you do?

Simply kill yourself. Not literally, of course. But the moment you have gained DVP, you must look for ways others will overtake you, and then do that yourself! Don't wait for the competition to come knocking on your door - that would be too late!

I wish you all the best!

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