Small businesses struggle with differentiation. If you appear to be just like your competitors then the only way prospects can differentiate between the different suppliers is on cost. If suppliers are equal on all other measures, prospects will obviously buy the cheapest. There is nothing to justify them paying even a little bit more than is necessary. You have to be the lowest priced option to secure sales and this will dramatically impact your profitability.
However, as soon as you introduce some points of difference, the dynamics change. You can now demonstrate the extra value that your new features give purchasers. This makes you stand out. It also gives you a way to justify a higher selling price compared to your competitors. Your price may only be slightly higher but it can be easily justified and will not become a significant barrier to prospects buying from you.
Prospects who don’t want to pay a little extra to get your extra benefits / value will buy from your competitor. Most people buy on the basis of “best value for money” rather than lowest cost. Consequently, this is what you should be emphasising throughout your marketing activities.
If you can develop some new and unique feature(s) that prospects decide they must have, your competitors will see their sales drop as prospects opt for your better-value product. Your competitors will respond by developing their products in ways which match or at least neutralises your advantage.
You can be sure the competition won’t simply stand aside and let you mop up more and more the sales at their expense. To retain your competitive advantage you must be constantly innovating and introducing new points of difference. It is here that many small businesses fall short.
They choose not to invest enough time and money into the process of continually developing new competitive advantages that retains their uniqueness. As a direct result, they allow themselves to be drawn back into the pack of “me-too” suppliers. Once again, prospects will see very little difference between the various suppliers so they begin to focus back onto paying the lowest price.
Suppliers scramble to offer the lowest price in order to secure a sale. It isn’t long before sales are secured only when prices have been discounted to break-even or loss-making levels. Small businesses can’t win in a price war, especially against larger competitors.
After-sales customer care will tend to be reduced along with prices – suppliers earning wafer-thin margins will look everywhere to reduce costs. After-sales support activities will get scaled back. This means their customers get less value and more inconvenience whenever they call for any help and assistance.
Customers will soon get fed up with this level of treatment and decide to switch to an alternative supplier. If you are monitoring the lifetime value of your customers (which you should be) you will see this reducing as customers decide to switch to other suppliers much earlier than before.
It should be high on your agenda to do whatever you can to retain your customers for as long as you can. The only exceptions to this are your “high-maintenance” clients who aren’t profitable because of the heavy (often unreasonable) demands they make on your after-sales support services.
Your competitors will also be taking cost-cutting actions in response to their margins being reduced. This is a downward spiral that you must stay away from. It can only be broken by devising some way(s) to demonstrate you are different (and better than) your competitors.
Your extra value means you can stay away from any price wars. You will not get drawn into matching the downward movement in prices that are initiated by your competitors. Your higher price can be justified by the extra value you offer.
This means you have more funds which can be invested in improving your after-sales support services. This, in turn, gives you another way to show you are different to the competition.
- Review your main competitors. Identify where your differences are and pay particular attention to where they have an advantage over you. You will need to neutralise this advantage.
- If you already have advantages in your product use these in your marketing to demonstrate how you offer better value for money.
- Determine ways to develop your product in order to give you additional points of difference that can be exploited in your marketing activities.