It’s always helpful to use information about competing alternatives as an input into your strategy. However, you don’t want to make the mistake of using that information as a blueprint for your strategy. Similarly, customer needs should be considered within a careful framework, so it’s best to avoid a “we can do that too” approach.
Here are two secrets for making strategic decisions that incorporate the competition, the expected value realized by your customers and your unique competencies.
A price war is nothing more than a race to the bottom, and it's is the surest way to kill your offering. When customers perceive two or more competing alternatives as delivering the same value, price becomes the key differentiator. Declining margins are sure to follow. This happens when you stop innovating and instead start replicating what your competition does.
True differentiation clarifies what your customers expect from you and distinguishes how you’re different than your competition. We call this your sweet spot, which is the overlap between what your customers “should” want and your unique capabilities.
What customers “should” want is often very different than a feature request. When customers request product features, they can unknowingly disguise or misrepresent the underlying problem they’re trying to solve. Dig into the real reason behind the enhancement request to make sure it will provide incremental economic value. These requests, the ones that provide real value, can be a rich source of ideas for creating features your customers “should” want.
If you determine that a new feature or product will deliver economic value relative to the alternatives, determine if and how you’re uniquely qualified to provide it. Here’s where you must assess your customer’s alternatives, including your competition, to understand if there is an advantage to your company delivering the solution. If there is no real, sustainable differentiation, others will quickly catch up.
Once you’ve identified your sweet spot, build the financial story around your offering’s value and quantify it in a way that makes that value uniquely your own. This cannot be replicated by your competitors and demonstrates your ability to deliver a unique value proposition.
The better you can financially justify the incremental value of your sweet spot, the more you will drive customer interest. The best way to do this is by interviewing customers, collecting proof points, creating case studies and performing total-cost-of-ownership (TCO) analyses.
The changing dynamics of competition, customer wants, and your unique abilities can create challenges. Always apply these two core principles to develop a strong product strategy: (1) avoid copycat products and (2) focus on and quantify your differentiated value.