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The trap never fails. Jaynie Smith invites the roomful of CEOs at her workshop on competitive advantage to write the answer to this question: "What's the No. 1 reason I should do business with you rather than your competitors?" Then she asks those who wrote "Good customer service" to stand up. Next are those who wrote "quality," then "reputation," then "knowledgeable staff." By now, half the CEOs are on their feet.
When Smith gets to the tenth advantage on her list, virtually every CEO is standing. They're starting to look sheepish as the point of the exercise dawns on them: how can you claim a competitive advantage that's the same as everyone else's?
Smith, president of Smart Advantage Inc., a Fort Lauderdale, Fla.-based consultancy specializing in identifying and communicating competitive advantage, has set her trap more than 200 times for CEO groups and companies across North America. The outcome never varies. Almost every CEO writes down what she pointedly calls "blah blah blah" — claims so lacking in specifics that prospects tune them out. Just seven of the 3,000 chief executives she has spoken to in leadership round tables over the past four years have been able to articulate a meaningful point of differentiation, reports Smith, author of Creating Competitive Advantage. "They answer with clichés," she says. "But if you don't give a compelling reason why someone should do business with you, the tiebreaker falls to price. And we don't want that." These CEOs aren't necessarily wrong to think that their firms have good customer service or knowledgeable staff. What they fail to see is that such fuzzy claims do nothing to make them stand out from the pack.
It's probably true of your company, too. The biggest lie in business is the one you tell yourself: that you know and can clearly articulate why anyone should choose you over your competitors. Unless you've gone through a disciplined exercise to identify your true advantage, the odds are that you're off base. You might be promoting a benefit that customers care little about, or that isn't decisive in their buying decision. You might be promising something your firm doesn't consistently deliver. Or you might be right about the general terrain on which you have an edge over your rivals, but you're communicating it with empty clichés. (The others in Smith's top 10 are good results, our employees, consistent management, responsiveness, innovativeness and trust.)
It's far harder than it looks to state concisely how you're better than your rivals, so it's tempting to stick with a stale platitude and go back to running your business. Yet if your marketing materials don't distinguish your product from that of your rivals, you'll struggle to fill the sales funnel. If you don't supply your salespeople with a meaningful answer to the question "Why should I buy from you?" they'll be forced to compete on price. And if your existing clients aren't crystal clear why they're doing business with you, they could bail the minute they get a better offer.
On the other hand, if you're one of the few firms to get this right, you'll protect yourself from stiffening competition, sectoral slumps and, to the greatest degree possible, a full-blown recession. Should you decide to sell your firm down the road, you'll fetch a better price from investors prepared to reward a business that's laser-focused on its true advantage. Your staff will reward you, too, because working for an employer that knows what it delivers better than anyone else creates a sense of pride and excitement that energizes the entire organization.
The best news is that your rivals are probably hopeless at this task, leaving a market vacuum you can fill. Roger Hardy, president and CEO of Coastalcontacts.com, a Vancouver-based online seller of eyewear whose revenue climbed from $9 million in 2002 to $102 million in 2007, says if you get it right and your competitors don't, "you become the gorilla, a company that gets a disproportionate share of the sales and, most importantly, the profits."
Hardy, who has founded seven companies, admits he was "not great" at identifying the true differentiator at his previous firms, mostly Web-based businesses that competed on price. But without the economies of scale to consistently undercut his rivals, competing on price alone made him vulnerable to market downturns: "I was left without a chair when the music stopped." Yet Hardy was so caught up in the price game he didn't question his assumption that cost was all his clients cared about. "Back then, I was much less engaged with my customers," he says. "When you're having success, you think, 'I must be doing what customers want.'"
Hardy got religion a few years ago about the need to cultivate advantages beyond price when he read Inside the Tornado, Geoffrey Moore's book on surviving in hypergrowth markets. Price remains a key advantage for Coastal. But its true differentiator is continuous innovation to make it ever more convenient for customers. The company streamlined the ordering process so it takes four minutes or less to purchase a pair of lenses. It eliminated any perceived risk in buying from an unknown, virtual vendor by invoicing customers only after they had received and tried the lenses, rather than requiring payment up front. It took the worry out of waiting for product by using FedEx for next-day delivery. And it hammered home its advantage in convenience on its website, in a million e-mails per month to its customers, video ads on Facebook, and TV, newspaper and other advertising.
Hardy says Coastal never stops working to deepen its advantage. His managers take turns phoning 20 customers per week to chat about Coastal's service. They routinely discuss competitive advantage at staff meetings. A sales team runs online experiments to gauge customer response to new ways to make it easier and faster to buy from Coastal. "We've spent the most time on identifying and constantly building a successful competitive advantage," says Hardy. "That's why this company has been the most successful and my other companies have been, at times, mediocre."
There's no definitive measure of the payback from determining your firm's true advantage, but specialists in the field cite impressive figures. "My clients insist on getting at least $5 back for every $1 they spend on our process," says Harish Chauhan, CEO of Business by Philosophy, a Toronto-based consultancy that helps firms develop a positioning statement of six words or less called a Unifying Philosophy (UPh). For the past three years, Chauhan has guaranteed that if the client's own calculation shows its ROI hasn't met this minimum, his team will work for free for three months until it does. It has never had to do so. Smith says she's comfortable promising 20% to 40% higher close rates. She points to dramatic gains by such clients as the Visiting Nurse Association of Florida (VNA). Its nurses now act as sales reps, handing out laminated cards that articulate the organization's differentiators, such as that VNA patients improve 34% faster than the U.S. average. This helped fuel a 40% sales jump within six months.
Why aren't all companies beavering away at defining and articulating their unique value proposition? The biggest reason, says Smith, is that most firms don't think they need to: "They believe, 'We're already successful, we're doing fine, we already know our customers.'" Hardy says it can be tough to admit you've succeeded largely by floating on a rising tide — or maybe "you don't know that you don't know what your competitive advantage is until the tide starts to pull back out." And many entrepreneurs mistakenly believe you can pull a competitive advantage statement out of a hat.
Jeff Cullen, CEO of the North American division of Bellville Rodair International (BRI), says the company spent 18 months developing its current positioning statement ("Building Reliability") and instilling it throughout its operations. (See "A promise you can keep," page 33.) However, the Mississauga, Ont.-based freight forwarding and logistics provider had put far less thought into its previous value proposition. In search of something catchy, edgy and matching the initials in the company's name, says Cullen, "we spent probably an hour and a half with a dictionary open when we came up with 'Bold. Reliable. Innovative.'" In hindsight, Cullen admits, the statement lacked substance.
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