Differentiation Drives Value SalesBy Lawrence Walsh | Posted 2009-05-12 Email Print
Few things beyond price distinguish commoditized products in end users’ eyes. Solution providers have the ability, if not the duty, to create the value proposition and the market differentiation that will compel customers to invest in new technology.
Futurist Bob Treadway often invokes the "Noah Principle"—as in the biblical figure—when referring to business and economic forecasting. "Predicting rain doesn’t count. Building arks does."
In other words, it’s not enough to sit around and know that an opportunity exists to make money; you must actively pursue the opportunity and provide a reason for the customer to engage. In a market dominated by commoditized products, creating a raison d’être means adding value through systems integration and services to otherwise low-value hardware and software. As Treadway says, "It’s not just what it is, but what it does" that creates value.
Adding value is the crux of what the channel does for the IT marketplace. In fact, vendors such as IBM, Cisco Systems and Microsoft believe that their partners are the true means for differentiating their products in the open market because solution providers have a greater understanding of the culture and economic conditions on the ground than a large vendor could ever.
"Our ability to know the culture of each city and market is limited," says Richard Michos, vice president of channel strategy at IBM. "No one has the heft to understand that in the way a local partner can do it."
Why is differentiation important? Why should you think about your positioning in the eyes of the customer? Understanding and developing a differentiation story is vital—especially in economic downturns—to the viability and growth of solution providers’ business. Differentiation solidifies relationships with current customers and provides reasons for prospective customers to do business with you. That is critical during a downturn, says Treadway, since recessions are typically periods when a good business can gain market share by demonstrating greater value and affinity with customers.
"Market share typically is not gained in uptimes because you’re too busy keeping up with things. Market share is gained in downtimes because it’s when you can choose the customers you want to develop closer, emotional bonds with."
That means building arks more so than predicting rain. Think about it: Most of the major hardware and software vendors are reporting declines in sales. Why? Because they deal in commoditized products that basically have few functional differences. What’s the difference between at Dell PowerEdge M1000e and an HP BladeSystem c-Class or IBM BladeCenter H Type 8852 blade server? What’s the difference between a Cisco Catalyst and a Juniper EX series switch? What’s the difference between Symantec and McAfee anti-virus software? They are all basically the same, at which point the differentiator becomes price. And, as economist Carl Schramm famously said, "When everyone has access to the same technology, the technology has no value."
Price sensitivity among end users has never been greater. Many businesses are extending the life of their desktops, notebooks, servers and switches to five years or longer. Cisco Systems believes there is $23 billion in potential sales for replacing switches and routers older than five years. It’s cutting prices on select gear and offering resellers incentives and rebates to go after this "opportunity." But the reality is that it’s the solution provider that must still make the sale that’s based more on their delivery than on the actual product they’re selling.
Hewlett-Packard is providing more incentives and support to solution providers that make more investments in developing solutions and resources that add value to the customers. Partners that HP sees excelling even under trying economic circumstances are the ones that have invested the time and effort to build solutions that matter to their customers and the resources to deliver superior customer service.
"It’s about putting it all together and providing a solution to the customer," says Mike Parrottino, vice president of HP’s Personal Systems Group Sales and Management, Solution Partners Organization. "It’s about a value-driven experience that has multiple tie-ins and defined differences. That’s how solution providers create solutions using HP as the platform as the value proposition."
Differentiation is more than a product—it’s an idea, and solution providers sit at the crossroads of customer need and technology integration. Solution providers should be connecting with customers and prospects, listening to their needs and crafting value-add solutions for sale today and when the economy rebounds. It’s incumbent upon solution providers to change the conversation from one of just price to one of business opportunity, efficiency and value. In the end, solution providers are what make technologies great in the eyes of the end user.
Lawrence M. Walsh is vice president and group publisher of Channel Insider. Read more of his research reports at [CI] Perspectives.