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DELIVERING “THE RIGHT STUFF ”
Your customers, or would-be customers, need to be informed and reminded of what added values you provide them–extras that can save them money, time, and aggravation. Yet too many business owners and managers can be ignorant of what those competitive advantages are. The seafood supplier didn’t communicate that he was selling fresher salmon with longer shelf life, and thus enhancing his customers’ bottom lines, until a competitor threatened his market share.
You could be providing a lot of extras to your customers without realizing how much you are actually saving them. Or, if you do not provide meaningful extras now, you might consider adopting them. They can be critical competitive advantages. Consider the following:
Terms. I f you are a small or medium-size company up against a category killer, you might have flexible financing terms that the big guys can’t match. For example, a lumber company in the Northeast enjoyed a robust business with little substantial competition until Home Depot began to close in. One Home Depot box opened twenty miles away, and then another just ten miles down the road. Observers predicted that the lumber company would soon be bulldozed out of business.
Surely, it couldn’t compete on price, not against Home Depot ’s buying power. Lumber is lumber. So it concentrated on hitting Home Depot where it was vulnerable. It offered more - flexible credit arrangements for its most important customers–small contractors who often lack lines of credit from banks. The lumber company didn’t have to drop its prices to stay in business.It adopted new competitive advantages.
Guarantees. It is common for attendees at my seminars to tell me that their companies are “the only ones in our industry offering multi-year guarantees” on their products. But when I ask if they make a big deal about the guarantee to prospective buyers, most admit they do not.
The reason is usually the same: “If we emphasize the guarantee, too many customers may take advantage of it.”
That’s a pretty lame excuse. Either you offer a guarantee or you don’t. If you are confident enough in the product to guarantee it in the first place, make a selling point of it. Statistics show that a very small percentage of customers in any business actually use the guarantee. But the guarantee takes a lot of risk out of the buying decision and clinches a lot of deals.
Inventory turns. One of my favorite stories about inventory turns involves a clothing manufacturer who sold women’s clothes to boutiques around the country. When I asked him what differentiated him from his competitors, he said he thought his clothes were “wearable.”
“As opposed to what?” I asked, trying not to laugh. He began to talk about design, fabric, cut, and so on. When I queried what his competitors we re saying, he shrugged and said, “I suppose the same thing . . . but I know my stuff sells much better.”
I asked him what his customer, the boutique owner, cares about most. “Whether or not it sells,” he said. So I asked if his shop owners measured inventory turns. He answered that some did, some did not. I suggested that he teach them how to measure inventory turns and then he could prove to the shop owners his clothes sold better.
My point was that he should stop selling “wearable clothes” like everyone else and start selling inventory turns. Moving the goods is what matters.
Note: Be sure you can back up your boast. Your buyers will know soon enough if you can’t. As with any competitive advantage you claim, make sure you deliver.
Materials. One client in the home-improvement business who sold siding knew his product was “stronger and better” because of the materials he used. But he didn’t know how to convey that without sounding biased and subjective. Upon asking his employees a series of questions I learned from one of his engineers that the company’s product has a higher wind load rating than any competitive product. In many geographic markets, the higher load rating influences buying decisions. So if your materials are stronger and provide customers with a benefit, shout about it in a way that is measurable.
Delivery. I f you provide the same product as your competitors but you offer better delivery service, you have a competitive advantage. But how important is it? The Compleat Company, which sells promotional products, decided to find out. The Seattle-based company polled its customers about the importance of its on-time delivery. It found that its customers not only valued that service highly, they had a pretty low tolerance for being late.
Eighty-eight percent of its customers defined “on-time delivery” as being on schedule 97 percent of the time or better. Only 4 percent of its customers would accept an on-schedule rate of less than 93 percent. A manager from Compleat told me that the company is now focusing its energy and resources to make sure it meets that expectation. When Compleat’s customers want their deliveries, they will get them.
Information. In business as in war, intelligence can be priceless. In
Business @ the Speed of Thought (Warner, 1999), Bill Gates writes: “The most meaningful way to differentiate your company from your competition, the best way to put distance between you and the crowd, is to do an outstanding job with information. How you gather, manage, and use information will determine whether you win or lose.”
Knowing what your competitors are doing, and keeping up with trends in your industry, are basic forms of intelligence, and essential if you are going to run a successful business. So is listening to your customers. (Your own and your competitors’.)
The more competitive the business you are in, the more important the role of intelligence. You can’t afford to get caught fl a t footed if, say, a labor strike shuts off deliveries of critically needed material. Or if commodity prices suddenly spike or drop. Or consumer confidence sinks. Or if new products being developed by your competitors threaten your markets.
No matter what business you are in, failing to keep a weather eye on changes in your industry can be fatal. A lot of this “intelligence” is hardly proprietary. It simply amounts to smart business practices born out of experience. If you are a B-to-B supplier who sells to retailers, your customers’ success determines how well you do, too. Your experience can help your clients avoid common mistakes.
Small and medium-size businesses are often in the dark about key developments in their industries. They lack the time, money, and expertise to gather and evaluate that information. But that doesn’t mean it isn’t important. Consider the prices they pay for the goods or services they buy. Advance word of radical price shifts, or new products that will make others obsolete, can save them from missing a buying opportunity, or from laying in inventory that will soon become obsolete.
Keeping your customers informed of trends can only make them healthier, and in turn create more business for you. Word of mouth from your sales force is one time-honored way to accomplish this. But in this age of t h e Internet there are other effective ways, too, from e-mail to Web sites that keep clients posted on prices and other industry developments.
One of my former clients, the Institute for Trend Research, in Concord, New Hampshire, analyzes market and economic trends and makes accurate predictions as to when those trends will change. Its business is its forecasting expertise in a wide range of sectors, from industrial construction and agricultural market movement to interest rates, commodity prices, and inflation.
Subscribers to the company’s publication
EcoTrends get an important bonus: a discount on EcoCharts. EcoCharts, using raw data that the subscribers provide themselves, tells them which indicators included in
EcoTrends correlate c o r relate best to their specific businesses. ITR has defined four phases of economic movement; if t h e t rends that affect your industry are in Phase C, then you are expecting a downturn. Your actions might include a reduction in inventory and training, an avoidance of long-term purchase commitments, and deeper concentration on your cash and balance sheet. On the other hand, during Phase B, an upward trend, you would accelerate training, increase prices, consider outside manufacturing, and open distribution centers. This kind of information can provide companies with powerful competitive advantages.
Training. Many large companies offer specialized training for their customers, free or at cost, so they can run their business better. McDonald’s runs its own academy for new franchise owners, for example, so they can learn to avoid common pitfalls and maximize the return on their investments. The company draws on the experiences of thousands of other franchise owners and shares that knowledge, because it is vital to their own business. I often recommend to clients that if they invest heavily in training they should make a competitive point of it. For example, “We invest half a million dollars each year training our employees” or “. . . training our customers.”
From the Hardcover edition.
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Creating Competitive Advantage
By Jaynie L. Smith with William G. Flanagan Random House
Jaynie L. Smith with William G. Flanagan
All right reserved. ISBN: 0385517092
Chapter One
CHAPTER 1
Competitive Advantage Is the Reason You're in Business
Competitive Advantage is what separates you from the rest of the herd. It's what keeps your business alive and growing. In short, it's the reason you are in business. Yet the biggest marketing flaw in most companies is their failure to fully reap the benefits of their competitive advantages. Either they think they have a competitive advantage but don't. Or they have one and don't even realize it. Or they know they have a strong competitive advantage but fail to promote it adequately to their customers and prospects.
In my research with middle-market companies, I found only two CEOs out of 1,000 who could clearly name their companies' competitive advantages. The other 99.8 percent could offer only vague, imprecise generalities. These same CEOs often rely on outside consultants to guide strategic planning sessions. Yet, in my experience, very few consultants--even seasoned ones--give competitive advantage evaluation more than a superficial glance. Why? I wonder. And no matter the size of your company or the kind of business you are in, your competitive advantages should be the foundation of all your strategic and operational decisions. Ignoring them can be an expensive and even fatal mistake.After all, they're the reason customers choose to buy from you instead of the other guy. Without this edge, you will lose customers. Eventually, you will go out of business.
On the other hand, if you properly identify and exploit your competitive advantage, it will impact your bottom line early and often. Because your competitive advantage can be your deal closer. It answers the customer's key question: Why should I do business with you? What are you offering that the other guy doesn't?
If you can articulate a clear, specific reply to that question, you have your competitive advantage. If you can't, this book will show you how.
THE BIGGEST THREAT IS THE ONE YOU DON'T SEE
It's easy for today's business managers to lose sight of the basics as they focus their attention on a host of other reasons why their margins may be shrinking. You read and hear a lot about the threats of offshore outsourcing. You worry about falling behind in your use of new communications tools and in making the most of the Internet. These threats are certainly real, but you'll never have to deal with them if a more basic problem undermines your company.
In the U.S. Army, young recruits are taught this life-or-death lesson during combat field training. The recruits are alerted that three snipers (played by other soldiers) are crawling through the grass toward them.
As they wait for the aggressors to advance, suddenly, across the field, a figure pops up, and the recruits begin firing (using blanks). A little closer in, another figure pops up, and again the recruits direct their fire to that target. Two seconds later, the platoon is "annihilated" by hand grenades tossed by the third aggressor, who has managed to sneak up right next to the platoon while they fired at distant targets. The platoon was "wiped out" because it failed to act against the closest, and therefore the most serious, threat.
As a business manager or owner, the biggest threat you face is losing sight of your most important target--your customer. He is the one who can blow up your business simply by going elsewhere. You may play golf with him, bend over backward to rush a delivery to him, and even consider him a friend. But you can lose him to a competitor if you lose sight of your competitive advantage.
Too often, managers who see their businesses drifting and their margins shrinking will try to compete based on price. But the manager who drops his prices while his market share is shrinking is courting tragedy. It's like that old joke: "He's losing $3 on every shirt he sells, but he hopes to make it up on volume."
YOU'RE NOT WAL-MART
Most businesses cannot exist by being the lowest-cost providers. Wal-Mart can, but you probably can't. Still, too many companies allow price to be their only differentiator. They tout their prices even in the era of the Internet, where the click of a mouse almost always leads to a lower price. All those companies racing to the bottom are ignoring this vital fact: Price isn't everything. When you compete on price, you're accepting commodity status.
In my work with clients, we do not even discuss price. Play the price game and you are tossing margins to the wind. You become a commodity supplier rather than a marketer, and unless you enjoy vast economies of scale like Wal-Mart, you'll eventually find yourself whistling through the graveyard.
There are other ways to help your customers cut costs that have nothing to do with lowering your prices. If your products and services are more reliable, you can save customers costly downtime. Your service might be worth more because you provide it 24/7. Your products might be worth more because they are demonstrably better than the other guy's--or because you are the only company in the business that offers guarantees, free installation, free replacement, or employee training. Packaging, too, can make a critical difference.
To remain competitive, you have to become more conscious about why you are in business in the first place and what you are delivering that makes you unique. In the following pages, I will show you how you can continually increase your sales and profits by identifying and maximizing your competitive advantages. It's a basic, proven concept that will dramatically increase the number of deals that you close. Warning: It may force you to rethink the way you compete.
My "formula" applies to all companies regardless of product or service, size, or volume. It doesn't matter if you are selling fish sticks, furniture design, or financial services. Customers are customers.
BEEP--YOUR TABLE IS READY
One of my favorite small-company success stories is JTECH, a company that created a paging system for restaurants. If you have ever walked into an Outback Steakhouse, you are familiar with JTECH's product. It's a nifty, coaster-size pager that alerts you when your table is ready. Developed back in the 1980s, the paging system was the brainchild of Dave Miller and Jeff Graham. Graham was an investor and Miller a partner and operating manager of a barn-size restaurant named Mr. Laffs, located on the Intracoastal Waterway in Jensen Beach, Florida. The place was doing very well and one busy Sunday seated a record 1,100 people, who spent a combined $40,000 that day.
A few days later, Miller was out on the golf course with some friends, feeling pretty good about himself and his business, until his pals darkened his mood. They all frequented Mr. Laffs, and they were not happy.
"It's too long a wait for a table," one friend told him. "I had to walk out."
Miller felt as if his wallet had been stolen. Walkaways are to a restaurant manager what casualties are to a general in combat. You lose enough of them, and your fighting days are over. Walkaways not only represent immediate loss of business; they spread the bad word that you can't get a table, so don't bother trying. In the immortal words of Yogi Berra, when describing the original Mr. Laffs in New York City, "Nobody goes there anymore, it's too crowded."
Miller and his partners had a serious problem. Diners often had to wait too long to be seated, so some customers walked. Yet even as some folks were strolling out of the place, tables were becoming free all over the sprawling restaurant. There had to be a better way of getting fannies to the tables, and keeping customers happy enough to wait when necessary.
Graham, a former executive with Pratt & Whitney, along with Miller and their team, proposed using a basic paging system so the staff could communicate better.
Using an old Atari game cartridge, a pager housing a computer, and radio frequency technology they had developed in a prior venture, the team cobbled together a simple on-site paging system. Waiters and managers carried the pagers and devised codes for different messages. One beep might mean a table was ready for seating, for example. Two beeps meant food was ready for pickup. Three beeps indicated a dirty table, four beeps that there was an upset customer.
"It was primitive, but it worked," Miller recalls. "We had fewer walkaways. It made a difference."
It made an even bigger difference when Mr. Laffs began handing out its pagers to the customers themselves. Instead of nervously hanging around the hostess desk, listening for their names to be called or flashed on an unsightly screen, diners could relax at the bar and wait for their beepers to flash or vibrate to announce that their tables were ready. "Customers knew we weren't about to ignore them, since they had our beepers," Miller said.
The paging system soon paid for itself many times over. Within months, other restaurant owners in the area were asking about the system and how they could acquire one. Meantime, Miller and Graham kept tinkering with improvements and refinements. It didn't take long for them to realize that they had a potentially dynamite business on their hands. They took off their aprons and started JTECH Wireless Solutions, supplying paging systems to restaurants and other businesses.
Despite some early successes, JTECH had trouble convincing major restaurant chains to invest in the new system. So Miller and his sales team did cost analyses to show how the new system slashed the number of walkaways and otherwise increased efficiency. The chains listened harder. They tested the new system. And eventually, they bought it.
Houston's, which then had some thirty-five outlets, signed on. Outback Steakhouses, then with sixty-five stores, soon followed suit. Other chains and major independent restaurants followed: Darden Restaurants, Brinker International, Longhorn Steakhouse, TGI Friday's, Legal Seafood, PF Chang's China Bistro, Champps Americana, Panera Bread, Schlotzkey's Deli, Atlanta Bread Company, Angus Barn, Tavern on the Green, and Scoma's.
JTECH was on a roll. By this time, Miller and his partners had leased their restaurant and were involved full-time with their increasingly sophisticated paging systems, looking for new markets beyond the restaurant trade. Soon the business expanded to the entire hospitality industry, from restaurants and hotels to bars, nightclubs, casinos, country clubs, and cruise ships. New markets popped up like mushrooms after a hard rain, not always where expected.
Automobile dealers and auto service centers began signing up, as well. They used the system to locate sales staff faster, to improve communications among staff, and to alert customers when their cars were finished with servicing.
Best Buy, the giant electronics chain with close to 700 outlets, now hands out JTECH beepers to customers while they wait for their computer systems to be configured, upgraded, or repaired. Target stores, with more than 1,100 stores in forty-seven states, has been supplying JTECH pagers to customers waiting for drug prescriptions to be filled at their in-store pharmacies. While they wait, they shop.
"We started getting calls every Monday from Baptist churches," Miller says. "They wanted to use paging systems in their nurseries to signal parents. We could never figure out why we got so many of those calls on Mondays, until we realized that churchgoers were seeing the system at work in restaurant chains over the weekend. They saw its potential for their own churches and promptly called us on Monday mornings."
Hospitals and health care providers began calling. Dozens of shopping malls became customers--especially at Christmas, when kids come to see Santa. When the elves are nearly ready to bring the kids to the big guy, parents get paged. Miller even had a request to develop a system to help train Dalmatians. Many of the breed are deaf, making then hard to train. But JTECH developed a small handheld transmitter that gives off a gentle vibration to prompt the dog to look at its trainer to heed hand signals.
JTECH was doing fine, but soon it had competition. A few other companies popped up around the country offering the same kind of device. Eventually, Motorola waded in. "Motorola made a serious run at this business in 1995 and 1996," Miller recalls. After all, the name Motorola was practically synonymous with pagers.
"We had been in business for years, and we felt we knew the needs of our customers better than Motorola or anyone else. But how could we prove it on the spot to a new customer?"
It was a nagging question, as Motorola wasn't the only company jealously eyeing JTECH's growth. What could JTECH say that made it better than the competition? Unsure of the answer, in 1999, Jeff Graham, then president of the company, called me and scheduled one of my workshops on competitive advantage.
At the workshop, JTECH executives set about determining exactly what the company's strongest competitive advantage was. Its service was great, its equipment top of the line, its costs competitive. But that's what the competition said, too. JTECH needed a simple, strong, accurate, and convincing statement to differentiate itself from its competitors.
The JTECH team brainstormed at the workshop and afterward to determine and articulate JTECH's best competitive advantage--in straightforward, quantifiable terms. They kicked it around among themselves, asked their customers, and finally nailed it down:
Of the fifty largest chains who use paging, 100 percent use JTECH.
That one statement was better than a royal warrant-- it put the competition on the ropes. Restaurant chains are notoriously tough sells, but JTECH had won them over and kept them on. JTECH quickly adopted the slogan and made it a mantra. Customers responded. Sales closed faster. Competitors couldn't counter that message.
"People who make the decisions to invest in things like the paging system cannot afford to make mistakes," Graham says.
Continues...
Excerpted from Creating Competitive Advantage by Jaynie L. Smith with William G. Flanagan Excerpted by permission.
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