Developing a unique selling proposition is about creating a distinction between you and your competition.

by Tim Underhill

The challenges facing distribution are coming faster and with greater impact than ever before. Globalization, e-commerce, integrated supply and consolidation are all changing the competitive landscape. As customers learn about the opportunities these challenges offer them, and as they implement supply chain management programs, they have been able to drive down prices while requiring more services. Both can squeeze the
distributor's profits.

Many distributors have been caught off guard, wondering why the value they add is forgotten. But consider for a moment which of the following services you offer or can offer your customers:

   1) Consignment
   2) Vendor (distributor) managed inventory
   3) Summary billing
   4) Fastener selection support
   5) Technical support
   6) Fit-to-function substitutions
   7) Emergency response
   8) Surplus material reduction
   9) Various forms of electronic commerce
 10) Credit card acceptance

Now, consider if your primary competitors can do these same things. If they offer similar products and similar services, how is your customer supposed to differentiate between you and your competitors? When they cannot distinguish between suppliers in terms of services or performance, the only difference to a customer may appear to be price.

But every distributor is different and impacts its customers differently. The question is, how can you create a differentiation between your company and your competitors in a way in which the customer can perceive these differences and be willing to buy on them? Creating this differentiation is the basis for developing a unique selling proposition. It starts by developing a distinct advantage in any of five major areas: price, value added, performance, compatibility and minimizing risk.

Price
Being the lowest priced supplier is not the only way to differentiate your company on price. A short list of some other ways in which companies differentiate themselves includes:

Rebates

Risk/reward sharing incentives where the distributor may pay or receive additional monies based on various pre-set criteria

Guaranteed savings where the supplier may have to pay the customer if certain cost reduction goals are not met

Activity-based costing systems that charge for services separately

Service fees that allow the price paid to look smaller and can lower sales taxes

In most cases, it is important to remember that customers have to internally justify some reason for not going with the lowest price offered, particularly on a large contract. So the further you are from the lowest price, the more important it becomes to provide the justification.

Value added
Perhaps one of the most critical areas where distributors can differentiate themselves is in their ability to show, in dollars, the value they add to their customers. Every distributor talks about the value they add, but how many can really demonstrate it so the customer can see the impact on costs other than price? This ability is what true value added is about: showing your customer how to be more profitable. Since most customers do not know how to quantify the value you add, you must do it for them. 

Consider again the list at the beginning of this article. Where do these services impact the customer's profits? Most impact four categories of total cost:

1) Revenues. Often overlooked as an area to add value, revenues can be one of the most significant opportunities for improving a customer's profitability. Anything - service or product - that can help minimize downtime or increase output efficiency adds tremendous value to customers.

2) Assets. Your ability to minimize the asset requirements of your customers, primarily inventory, reduces their possession costs, thereby improving their bottom line.

3) Process costs. Reductions in personnel costs are one of the most common ways in which suppliers add value. But even here, most companies fail to capture the reduced costs they offer customers.

4) Expenditures. If viewed on an annual basis, not on a unit basis, many opportunities exist that can make both companies more profitable. Substituting an existing product with one that may cost more but reduces usage requirements is just one example.

The value you add is not measured by what it costs you, but rather by how it impacts your customer's profits. You can create a competitive advantage for yourself by measuring this for them and showing the potential savings.

Performance
Like value added, every distributor believes its company can meet or beat the performance of their competitors. If everyone states this as fact, how can you differentiate your company? This issue is much tougher to measure than value added, but can be measured in much the same method by looking at the impact on the customer's bottom line. The difference is that performance, or poor performance, looks at the increased costs to the customer because the supplier does not perform as promised or expected.
 
This can create a problem because suppliers can only measure their own poor performance, not that of their competitors. Unless the customer buys from every supplier, it can be hard for the customer to compare the measured costs across all suppliers.

So, to differentiate themselves, some distributors:

1) Provide performance guarantees. This can include penalty fees or loss of the contract.

2) Show performance cut-over costs if they already own the contract. No matter how good the new distributor is, there is a learning curve on understanding the customer's needs and how to meet them. Some customers have found corrective action costs to be as much as 35 percent when compared to the price paid for the goods during the first six months.

3) Tie performance to risk and/or compatibility issues. When specific costs are not accessible, it can be advantageous for a supplier to indicate the risks faced if a customer chooses another supplier. This assumes the supplier can differentiate itself in this area.

4) Demonstrate current performance abilities. Abilities to tout might include on-time delivery, lead times, accuracy of billings and deliveries, special order handling and a host of other issues. Performance can be a powerful tool for differentiating suppliers.  

In almost every customer survey on this topic, delivery and other performance issues continuously rank as a higher selection priority than price. But getting customers to buy on performance is difficult when they perceive no real difference.

Compatibility
While price, value added and performance all have a direct impact on a customer's profits, compatibility is less quantitative and more qualitative. It is the area customers try to use the most (other than price) to distinguish between suppliers. As such, it can be a tremendously valuable way to differentiate your company, if done properly. It is based on showing your abilities, strengths and assets for helping the customer meet their goals.

Once again, it's difficult for customers to distinguish the strengths and weaknesses of one supplier from another. Why? We do not create that distinction. For example, distributors often tout people as one of their strengths. But how can the customer distinguish between different companies when everyone says this (what company wouldn't?), provides the same proof (years of experience and other qualifications) that often all look the same? They can't make the distinction. When they can't make this distinction, that strength becomes moot. 

To create a distinction based on abilities and assets, suppliers must tie each strength to how it helps meet a specific customer goal. Don't simply provide a shopping list of everything you offer. 
If you want to differentiate yourself on your people, introduce the specific people who will work the account and explain their roles.

Focus on why they provide the best skills needed in this relationship, such as the number of years they have already worked to service that account. Explain how they will work to meet the customer's objectives, such as cost reductions. What abilities do they have to implement system changes?

The more you focus your strengths and assets on accomplishing the customer's goals, the easier it becomes for the customer to make the distinction about what it is you offer.

Minimizing risk
Where the previous four areas focused on the positive aspects of making the customer more profitable, risk minimizes what could go wrong. The list at the beginning of this article illustrated a number of value-added opportunities that could make the customer more profitable. Now, look at this list and ask yourself what could go wrong, from the customer's point of view, if they pursued these with a supplier. 

Every change entails risk. It may be minimal or critical, but the risk is there. When presenting the benefits you can provide, include how your method for implementing value-added services, your performance, or your strengths can minimize these risks. It is an often forgotten side of selling.

Developing a unique selling proposition is about creating a distinction on which customers can buy. It is not a question of using just one of the five areas. Distributors should pick and choose several areas based on the needs of their customer and their ability to excel in those areas. 

Build a distinction the customer can see, because every supplier claims the ability to provide the same things.

Tim Underhill is president of Underhill and Associates in Tulsa, Okla. He can be reached at 918-494-8085 or underhill@underhill-assoc.com.

This article appeared in the 2000 Progressive Distributor ASMMA/I.D.A. fall edition.

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