- How to transform a competitive advantage to the most profitable and powerful value proposition
By Nils Randrup
Many companies feel that they have some great products or strong brands which generally should be able to perform much better than today. Many suggestions and ideas for how to close the gap between the current product contribution and the potential is discussed and tested without much success.
Our analysis of 200 different products in such companies suggest that more than 75% of these companies are not able to clearly and effectively define the financially most attractive position of their product.
This symptom is an indication of a grave problem which hides below the surface. Many products are not positioned on the right dimensions or at the most profitable position in the market. Most companies seem not to have a clear and quantifiable understanding of what the customers have of key decision criteria for choosing one product over another. Most companies base their positioning on dimensions that key customers do not put a high value on. And often there is no relationship between the competitive advantage of the company and the position chosen for it’s major products. That is in essence the key reasons why companies in our study seem not able to select a strong position.
This key strategic problem has grave impacts on the profitability of the products, and on the effectiveness of the sales and marketing initiatives:
· It seems impossible to have and sustain a strong product strategy without this knowledge
· The key selling proposition is not in line with the real potential of the product.
· The sales budgets does not fit the real market potential
· The key strategic activities such as investments in R&D, Branding investments, communication plans, product arguments in sales materials, sales meetings/presentations, and advertising are a waist of money and time because they give a negative return on investment (ROI).
This give rise to the conclusion that the go-to-market strategy for many companies is weak, and that poor positioning is the key reason for that product is not performing as is should.
Some companies realize that a significant improvement is necessary in how they market their products, and they want to engage in an improvement process that starts with their positioning, which consequently leads to more effective market activities.
When the positioning analysis is done the company has a sharp and focused strategy for the product, and a clear understanding of the profit and turnover potential in the current market. They know exactly what customers they are building their business on and has a much more precise target group definition. They can improve the effectiveness of the sales efforts by having much stronger and more relevant arguments for why customers should choose the products over other product options. They can improve their price setting. They can achieve higher ROI on their advertising. They can focus the R&D efforts. And they are able to plan the product portfolio in a much more effective way. And the ultimate benefit of this is a significantly improved bottom line for the product.
Successful positioning is done based on selection of which primary selection criteria the company are able to support in order to generate higher than average profit in the target market. The same product might have different positioning, if the target market selection include multiple target markets with differences in primary choice criteria. The objective of competitive positioning is to successfully choose positions that enable the company to generate a higher than average profit in the industry or segment served. Successful positioning is usually connected to the competitive advantage of the company. Within a chosen target market, the customers short list criteria outline the “must haves” of the value proposition, the generic performance criteria. It is not possible to successfully position a value proposition on these generic short list criteria. They are the “ground rules of engagement” to be a player in the first place. There usually exist different key selection criteria, not just one or two, depending on the number and nature of target markets in the chosen market segment. By pragmatic multi-source analysis, it is possible to identify and quantify the primary selection criteria in the chosen market segment. When this is done it is possible to estimate the volume sales and the expected profit/product contribution for a specific value proposition in a specific market.
When considering to implement improvement of the positioning, there are typically some concerns when considering and deciding to do the positioning improvement:
For some it might seem like a very difficult task, when it is hard to see how the improvement should be done in practice. This problem is a problem of knowledge, and is therefore easy to solve if there are some time invested in finding a good practical model with an outline of what should be done on what order.
Skills and tools available?
For some it might be a problem, that the current organisation does not have the intellectual skills, competences, or planning principles readily available, which is needed to be successful with the improvement of the positioning. This is a question about intellectual capacity, and is easy to solve if it is possible to find and buy the competences from a consulting agency.
For some it might be a problem that there are no resources both in terms of manpower available or budgets for analysis or external consultants to engage in such a process. This is in essence a financial problem. If there are no resources available then it might be relevant to review the situation for the all market activities and departments, and the shift resources from other less important initiatives to the improvement of the positioning. If this is not possible, then it is possible to borrow the money. Current cost of capital is very low (2-5%) and so for a small premium, the company can invest the money up front and pay back over time when the improvements improve the cash flow.
For some it might be hard to see the actual value of improving the positioning strategy, when it is the sales and marketing initiatives which need to be improved in terms of ROI. This is a cost/Benefit problem. On the benefit side - in order to identify the potential tangible value of the improvement - it is necessary to quantify the expected potential (benefits) of the product vs. the current potential. This can be done based on a speculative analysis or a bench-marking analysis against other types of products. On the cost side, it is necessary to evaluate the manpower and external cost it will take to have a stronger position. This equation as a rule of thumb always show a large positive value add from the improvement investment when the ROI is calculated for a period of more than 5 month.
For some it might seem easier and quicker to invest in other more successful products, than to start an improvement process. This is a convenience problem. The easier way is not always the best way, especially if the product has a larger share of the turnover, or if the product is one of the products with the largest potential. So the best thing to do is view the investment based on the payback level, not on what is the easier thing to do.
So when the key financial performance problem is a weak positioning, the solution is implementation of a positioning improvement process, and the result is insights about how to re-position the product in order to significantly improved profits.