Customers tend to see many products as commodities, meaning they don’t perceive much difference between companies, and so they just go with whoever is cheaper. If they don’t see a meaningful difference between cleaning companies or transport companies, they don’t tend to be loyal and so will buy from anyone.

Your goal must be to build a business that is perceived to be meaningfully different from competitors. This means offering something unique that creates real value for enough customers. This can represent a unique challenge for someone who has few resources. You first must recognize potential sources of meaningful differentiation, which requires an in-depth understanding of customers and competitors.

New businesses differentiate themselves from others in many ways, including:

• the quality of your offerings

• the amount of selection for the products or services you offer

• being more innovative than other companies

• how easy you are to do business with compared to other companies

• the speed of turnaround between placing an order and getting the product of service

• the kinds of experiences you create for customers

• the hours you are open

• your ability to customize the product or service to the customer’s specifications

• the support you provide after the sale

• value for the money

These are but a few examples. It is about understanding customers and their needs and being creative. For instance, a cleaning company might differentiate itself by specializing in cleaning houses where there are pets. The bicycle rental business we described in Step 21 differentiates itself by offering to deliver the bikes to and pick them up from the customer.

A more specific approach to uncovering sources of differentiation can be found in the following four-circle diagram.

This framework encourages the entrepreneur to look at what they are selling at four levels. The core level involves translating what is being sold into the primary benefit being delivered to customers. An entrepreneur that makes uniforms for local companies is not really selling uniforms, they are selling professionalism or company image benefits. The tangible level refers to aspects of the basic product or service itself, such as the quality level or the selection available. The augmented level concerns ways in which the basic product or service might be augmented, such as by providing delivery, a warranty, or easy return policy. Lastly, the communicated level has to do with a unique identity or image the company is trying to convey to customers. A cleaning company might try to project itself as environmentally conscious based on the types of cleaning products and disposal practices it uses, or as a socially-concerned business based on employing the disabled or relying on equitable labor practices, or as patriotic based on hiring vets, the colors on its vehicles, and the community events it sponsors.

Using this framework (and you can add additional variables at each level depending on your type of business), the entrepreneur is able to identify variables (or combinations of variables) that make you different. This applies to even the most basic of business types. Of particular importance is the need to find sources of difference that are not easy for competitors to copy given the way they are organized.

Once one or more sources of differentiation are identified, the entrepreneur must build their business around this difference. Doing so is not easy for the disadvantaged entrepreneur. Differentiation requires discipline. The entrepreneur is worried that differentiating in a particular way might alienate other potential customers who are not attracted to this difference. But attracting a lot of people who value the source of differentiation will pay off far more than the returns from going after anyone and everyone with a generic approach that is just like what a number of competitors are doing. Further, where customers perceive a difference and it is a difference they value, they are often willing to pay more and demonstrate more loyalty to the business.

Differentiation can require time, effort, and money, and has to be continually reinforced in the minds of customers. When your resources are severely limited, identifying a source of differentiation early on is critical. Once resources are configured in a particular way, it can be costly to change things around in ways that create a meaningful difference.

📖Reading: Differentiation Strategies (Blog)

📖Reading: Tips for Your Business to Stand Apart

📖Reading: Branding Insights (Blog)

📖Reading: How to Escape From the Commodity Trap?

Video: What is the Commodity Trap?

▶️ Video

🧠Exercise: Helping Yolanda: Case Study

A business is more than the products and services that it sells. When you define the essence of a business, you are talking about its unique value proposition. Customers are trying to solve a problem or address a need. So, the heart and soul of your business is concerned with what you are doing for a customer, how you are making their life better; or, if you are selling to a business (B-to-B), how you are making the business better. Ventures make money based on how much value they create for customers. So, the question becomes “what is unique about the value you are creating?”.

You are not selling products or services; you are selling benefits. An example is a company that cleans office buildings. Their services might include dusting, vacuuming, polishing, sweeping, sanitizing, and so forth—but the business owner will tell you that they “improve the productivity of your employees.” Virgin Airways is famous for recognizing that they are not in the transportation or airline industry, they are in the entertainment industry at 25,000 feet. Uber, the ride share business, defines its unique value proposition as “uber convenience—the smartest way to get around”. You don’t have to search out a taxi, wait a long time, explain where you are going, or deal with paying the driver.

Your unique value proposition centers on the question “what business are we really in.” It is important to define your business in terms of the customer benefits you are providing or needs you are addressing. A high-end shop that sells fancy desserts should not define themselves as a seller of cheese cake or lemon meringue pies. Instead, the entrepreneur might argue that “we sell indulgent experiences”. In this example, the entrepreneur understands that what the customer is really doing when they buy a dessert is to indulge themselves or treat themselves to something special that they deserve. Alternatively, think about CNN (Cable News Network), the 24-hour news channel. They have all kinds of programs that they offer, but their unique value proposition centers on “instant information, anytime, from anywhere”. They are keeping you informed by selling the immediacy of the information, or quick access to the latest breaking news.

Another way to approach your unique value proposition is to think about customer pain points. What is the pain you are relieving or difficulty you are removing with your products or services? How are you making someone better off? How can you connect the benefits you provide to a significant problem a customer has?

Keep in mind that we are talking about not just a value proposition, but your unique perspective on the value you are creating. The challenge is to look at your customers and your products differently than your competitors do. There might be a large number of cleaning companies, or transport companies, or event planners in your local market. But what do you understand about the customer that other businesses don’t get? Center your thinking on the customer—walk in their shoes, empathize with their problems and their needs. When they do business with you, what is in it for them?

When you formulate your unique value proposition, you are telling customers why you deserve their business more than your competitors deserve their business. Starbucks is more than a coffee shop—their value proposition does not mention coffee at all, but instead centers on “creating a culture of warmth and belonging, where everyone is welcome”.

You want to be clear, concise (not too many words), and explicit about what you do for the customer. For instance, HelloFresh provides prepared meals delivered to your front door. Their unique value proposition is simply “we make mealtime less stressful”.

📖Reading: How To Create a Value Proposition (PDF)

Video: Positioning Your Business for Success

Video: How to Position or Diferentiate Your Business from Others?

Video: Identifying What Makes Your Business Unique (Unique Value Proposition)

Video: Unique Value Proposition (Example)

▶️ Video