Four of the common reasons companies - and their new products - fail can be attributed to a lack of marketing science.[2]
In this four part series, we examine each and provide indicators to help you identify areas that your organization needs to improve in order to accelerate growth.
4 Root Causes of Business & New Product Failures[3]
- Part 1: Not in touch with customers through deep dialogue
- Part 2: Lack of unique value proposition / differentiation
- Part 3: Failure to communicate value proposition
- Part 4: Inability to nail a profitable business model with proven revenue streams
A lack of differentiation can be described as a lack of value proposition. A solid value proposition answers the question, “why do customers need your products or services?” The more unique these reasons are to your business, the harder it is for competitors to copy your offer. In the words of Warren Buffet, you have to build a large moat to defend your business. Here are 5 indicators that it may be time to increase the size of your moat and build your differentiation.
- High Percentage of Second Source Business. Nothing says “me too” like second source designation. The term can be misleading as there are often more than two suppliers that meet the requirements. It’s a normal part of the product life cycle to move to second source status. The problem arises when most of your business is serving as a true second source or can be second sourced. Procurement thrives when you are in this position because they both mitigate their supply risk and have leverage to gain price concessions. What’s in it for you?
- High Percentage of Low Margin Business. Differentiated products and services command premium prices due to the value they bring to your customers. Even in low margin industries, there are products customers will pay more for. If the majority of your business is at or below the average profit margin for your industry, it’s a good time to differentiate.
- Your Team Cannot Immediately Explain Your Differentiation. Sales, marketing and R&D teams are proud of the products they develop and sell. If they can’t explain why customers are buying or not buying your products, it may be due to a lack of differentiation.
- You Are Losing Business to Your Competition. If you are losing substantial pieces of business that are strategically important to your long term sustainable growth, it’s an indicator that your competitors are beating you in an area where your customers have a satisfaction gap. If the bar on performance has been raised, you need to find a way to further raise the bar or differentiate in another area that your customers view as important and are unsatisfied with the current options.
- A High Percentage of Your Profit Is Coming from Old Products. Products have life cycles. Over time they are replaced by new offers that better satisfy customer unmet needs. Very successful products move to a stage in the product life cycle called mainstream adoption. We sell a lot of volume and earn good margin in this stage. The other name of this stage is maturity. It’s important to monitor the maturity stage as it will inevitably transition into the stage of decline. At this point other offers are better meeting customer unmet needs and it is only a matter of time before this business deteriorates. If the majority of your products are older than the typical product life cycle for your industry, it is likely you are in the maturity stage. The larger the profit contribution from mature products, the more urgent it is to invest in differentiation.
Kelly Lawrence is the Founder and CEO of Lawrence Innovation. We bring over two decades of expertise in converting customer and market insights to growth. We’ve delivered results for B2B innovators around the world including Berkshire Hathaway’s Lubrizol & Fortune Brands’ Moen. We know how to identify profitable problems to solve, develop and communicate unique value propositions, and implement profitable business models that generate results.
