It was at the end of 2005 when I started to appreciate the power of segmentation and positioning. During one my analyst calls one of the industry analysts in my network advised me to get some help around positioning and segmentation of our solution. His honest opinion: ‘your solution has something truly unique, but the way you talk about it doesn’t help you.’ And he was right. We struggled to stand-out in our target segment. We always praised our self as being the best-kept-secret. But who cares if its a secret? The ERP market we played in was dense – a very crowded marketplace – full of much larger vendors with big brands and marketing pockets that made ours look like a drip on a frying pan.
Becoming the obvious choice
That moment of honesty by the industry analyst triggered a series of events. I indeed reached out for external help. That kicked off a project that turned the segmentation of our flagship product on its head by creating an entirely new category across various traditional vertical markets. This new category perfectly addressed the unique challenges of our ideal customers and perfectly positioned the strategic flagship product of the company I used to work for as the clear choice to them.
From there, everything changed. It boosted our ability to engage with our ideal customer in a significant way, resulting in higher win-rates and increased deal-values. It was so extreme that some of our competitors (large international brand), in some countries, would qualify out if they knew we were participating in a bid.
“State of the art”, “Robust”, “Unique”, “Leading”, etcetera, won’t cut it.
Fast forward, I see the same challenges I had 13 years ago, still being a common problem in the business software industry. Many vendors fail to stand-out in their target market. The product differentiation is there, but they sound the same as all their ‘competitors.’ It often makes me smile to see the ‘clever’ ways to make an impression: “We’re the leading solution for X.” “Our robust, state of the art solution ….”. “Our Artificial led, Machine learning infused, hybrid Cloud solution….”
Remember: Just by saying you are a leader doesn’t make you one. Just by stating you are state of the art doesn’t mean you are. Just by using all the hype words doesn’t build trust – it does the opposite – it spells out there’s something to hide, and as such your potential buyers are very much on their marks.
What strikes me is that the issue isn’t isolated to the vendors that have something to hide or vendors that have an ‘average’ solution. To the contrary, every week I speak with CEOs of software companies, pioneers in their space, that deliver solutions that deliver remarkable, often transformative impact. Fact is, it’s just not always coming across that obvious if you analyze their website or marketing collateral. Sometimes there isn’t even a real competitor, but they still manage to find a marketing message that sounds like the previous generation. This mistake undermines their potential – and so does it threaten yours if you don’t address it.
The impact of not standing out
The problem with not standing out goes beyond the fact that the largest, most ‘known vendor’ gets the benefit of the doubt, winning more than they deserve to win. The issue is broader than that:
1) The change you aim to make with your solution isn’t happening. So we’re all missing out on something big. That’s sad. Many vendors have a brilliant big idea behind their solution, giving them a solid competitive advantage, but because it’s not coming across in the right way to the right customers, the impact gets lost in translation. I have seen that first hand with the solutions I managed. Before 2005 we sold the features of the ERP and ignored to sell the dream, the vision. Consequently, we didn’t resonate with the C-suite and were downgraded to sell at the user level, selling a commodity, at a commodity price. Changing the market segmentation, and the positioning turned this model on its head. The rest is history. Same solution – different playing field – different impact.
2) Creating momentum is a more significant challenge because your marketing- and salesforce are challenged persuading prospects and influencers of your point of view. This extra effort means you have to have a larger budget, to find more ‘leads,’ to make up for a high loss rate. It’s a simple calculation. If you sell your solution at an average of 100 (list price minus 60% discount) in a crowded commodity market, you need 500 leads to sell 10.000 in revenue, just because you are closing 1 in 5 at best (20% win-rate).
What if you’d sell at list price (250) because the value you communicate makes it a bargain, and because of this value you start winning 4 in 5 (80%). This difference means you suddenly only need 50 leads (to win 40). Factor 10 difference. Easier on your marketing budget, more comfortable on your sales organization (and much more fun) – and very likely a model, where each of your customers brings you the next one because they become your biggest fan.
3) Your bottom line is impacted harder because you’re forced to give more discount than necessary. Secondly, your sales pipeline is less reliable because of the extreme competitive pressure that makes it a roulette game. As such you’re fighting a race to the bottom. No one can keep up with that for long.
The example above I experienced myself for long. It often felt like a cattle market, especially at the quarter end. In the On-premise world discounting that was still a choice, but in the SaaS world, it’s not. A 60% discount in the world of licenses always gave a contribution, a 60% discount on a Subscription price often ends up in a loss forever. So the problem has just become more significant and more urgent to fix.
The quality of a deal is not only influenced by the correct positioning/segmentation – but you also need sales to transform with it. But paving the right value foundation for everyone makes it easier to change than to hope for the individual qualities of a salesperson to fix the problem him/her self.
Three things to do to change the status quo
The power of smart market segmentation and positioning is under-estimated. Many companies choose the wrong axes to compete on and fail to identify the areas where they’d genuinely have an edge. So that’s where you need to start!
1) Challenge the status quo: If you critically review the product positioning/ segmentation of your flagship solution with the point of view of your ideal target customer – what do you conclude? What score would you give your product differentiation and its ability to drive meaningful value?
Turn it around – if you’d be looking for what you offer – would you be eager to call for an appointment?
2) Get clear what you stand for. Describe the change you will deliver to your potential customers. What will be the transformation they’ll notice, and why does that matter? If you are offering a replacement for what they have today, they won’t move. The saying is: If it ain’t broken, don’t fix it. So you have to bring something that’s irresistible.
3) Define your edge – find your extreme. This method is super simple, a brainchild of Seth Godin – but one that works magically, even on the back of an envelope. Plot two axes – one vertical, one horizontal. Now think of all the things your ideal target customers care about concerning the unique change you offer. Then narrow it down. Don’t go for the obvious choices – everyone does – that’s what crowds up your market. No, aim to pick the two options that are overlooked/neglected. Pick your #1 and identify it’s extreme/opposite. That’s your X-axis. Now do the same for the Y-axis. Now plot all the choices or alternative solutions your potential customer has to solve his/her problem. 9 out of 10 this will give you insights how and where to stand out in your market.
Need some more guidance?
- Set aside an afternoon in the coming weeks to challenge your approach to transformation. It’s refreshing to take some steps back and look at the big picture.
- Get some fresh ideas on how to differentiate yourself in a commodity market
- Join the Be Remarkable tribe for business software professionals and get inspiration from industry peers.
- This is why many software vendors struggle in the cloud
- Are you in the comfort zone, or where the magic happens?
- Is your software business suffering from complacency?