The Four Ps of Differentiation

By Dr. William R. McCleave, Jr. & Thomas P. Gale

Executive summary:

This article presents a model for thinking about how to differentiate a wholesale
distribution company. It introduces a framework – the four Ps of Position, Pitch,
Performance and Proof – that may be useful to create a plan for differentiation
unique to your company and the competitive environment in which you operate.
The article also outlines some of the common traits that differentiators have that
contribute to their success.

In all the different activities that make up a wholesale distribution business –

management, sales, marketing, operations, finance, logistics, inventory
management – some companies do some things a little better than their
competitors and they do some things a lot better. Differentiators find ways to get
beyond the daily distractions and focus on the activities that give them the edge,
that differentiate them in the customer’s view.

Successful differentiators are hard to imitate. They have developed unique skills
or service capabilities focused on customer needs that can’t be reproduced
quickly, often including in-depth knowledge and hands-on experiences about
customer processes. As a result, many companies stumble when they try to
imitate the competition. But companies can assess their capabilities and map out
a plan for differentiation based on their unique strengths and market position.

It’s impossible to provide a one-size-fits-all “cookbook” on how to differentiate

your company. Only you can differentiate, based on your knowledge, experience
and capabilities developed over many years. But many distributors have told us
this model is useful in challenging their thinking and as a flexible tool to guide an
improvement process. For that reason, the book provides self-assessment
worksheets to evaluate differentiation capabilities, competitors’ capabilities, and
a step-by-step process to prioritize improvement projects.

Key questions
To start the process of thinking about how to differentiate your company,
consider these four core questions, which relate to the four pathways outlined
below:
1. Do you have a big idea for differentiating your company in the current
marketplace? (Position)
2. Do you deliver a well-developed and consistent message focused on real
customer needs? (Pitch)
3. Have you chosen critical activities that must be performed to meet
customer/supplier expectations with performance improvement goals?
(Performance)
4. Do you have an effective system for validating your value contribution to
customers? (Proof)

How would you grade yourself on each question? Most executives have an
intuitive sense for the strengths and weaknesses of the company, but may not
have analyzed specific capabilities within each of these four distinct areas. While
few companies give themselves straight A’s across all four pathways,
differentiators are crystal clear about their core areas of strength and the value

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their customers place on these critical capabilities. Let’s examine the four
pathways and the framework they provide for thinking about differentiation.

Position

Position is about companies choosing market space in which they can win
against potential rivals using available resources over an extended timeframe.
Some people call this strategy. We like to think about a company’s position in
terms of a “big idea.” We believe it’s easier to focus on the specific capabilities
that define what a company’s position looks like under the umbrella of the big
idea than the often abstract concepts that tend to swirl around the term
“strategy.”

Differentiation demands that you are clear about your company’s distinct value.
If you decide to differentiate from your competition, you have two choices:
Either you play the same game but you play better, or you play a different game
in which you define the rules. A wholesale distribution company creates a
distinct position in its market by delivering special value to customers through a
unique blend of products and services. The big idea is the concept that drives
this value delivery system.

The big idea is often articulated through a mission statement that forms part of
a company’s core strategy. It is the underlying purpose for a business to exist—
the company’s heart and soul. A differentiating company firmly plants this
purpose within each employee and empowers each person to apply it, adapt it
and grow it every day into the company’s daily activities and culture. With a big
idea, a company can differentiate itself from competitors by having

• A clearer understanding of company intent for customers and employees.

• A better basis for value description.
• Better understanding of market thrust.
• Better screening of new opportunities.
• A higher level of engaged employees.
• Better management of core capabilities.

We found that differentiating companies adjust their big ideas as customer value
requirements and management goals change over time. Several of the
companies interviewed for this book shifted from decades of playing the same
competitive game to a much different approach. They realigned their big ideas to
match changing customer requirements and competitive forces. Then they
adjusted their capabilities to support their “new” big ideas.

Pitch

Pitch is how companies start and grow relationships with their supply channel
partners. It is what they promise to provide to their customers and how they
communicate that promise. Every company develops and delivers messages to
customers and potential customers that define how the company is perceived in
the marketplace. This includes both formal and informal communication such as
advertising, catalogs, product pricing, sales calls, service visits, phone
conversations and deliveries. Every point of contact outside the four walls of
your company represents an opportunity to differentiate.

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Many of the wholesaler-distributors we studied find strong differentiation
opportunities within pitch. Differentiating wholesaler-distributors share some
common traits:

• They have a consistent laser-like focus on value throughout their

messaging.
• They do a better job of communicating their big idea—their unique value
in the marketplace.
• They do a better job than their competitors in aligning their pitch with
customer requirements, available product and service offerings and
organizational capabilities.
• They do their homework about what’s important to customers and make
sure they can deliver what they promise and be profitable doing it.
• They set prices based on their objectives in the marketplace.
Differentiators are clear about what it means to be the low-cost provider.
They align pricing with their big idea, to either be better as the low-cost
provider or different as the high-value seller.

Performance

Performance is how companies execute day-to-day operational activities and

processes that define their ongoing relationships with customers and suppliers.
Performance is the fulfillment of pitch—the way you deliver the value you
promise.
Differentiating companies share some performance absolutes:

• They measure their performance in key areas.

• They perform on time.
• They perform activities completely.
• They perform what they promised.
• They avoid promising activities they can’t complete.
• They continually improve performance.

Two performance capabilities for wholesale distribution companies stand above

the others: human resources and financial performance. Companies weak in
these two capabilities are handicapped in any attempts to differentiate. They
simply spend too much time and energy correcting service mistakes, putting out
fires and living from month to month to be able to focus on developing
differentiation opportunities.
Cost management also is a critical performance capability for wholesale
distribution companies. Because savings from lowered expenses drop straight to
the bottom line, companies better at managing costs consistently outperform
their competition financially.

Proof

Proof is how companies build enduring relationships with their supply channel
partners. It includes the processes of identifying, documenting and
communicating the tangible value you promised to provide to your customer

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(pitch) and that you actually provided (performance). Wholesaler-distributors
who take the time to measure and report their performance and verify their
company’s financial or market impact on their customers’ operations create a
strong competitive advantage. They differentiate markedly against competitors
who take it for granted that their customers recognize the value of their day-to-
day performance.
Wholesale distribution companies that objectively prove their value to customers
also significantly enhance their relationships with key suppliers. Here again, the
wholesaler-distributor’s documentation differentiates the company from
competitors and provides additional leverage. Suppliers as well as customers
value the focus on the future that these capabilities provide.

Common threads

Differentiators share some common characteristics across the four Ps outlined

above:

• Strong leaders. Leadership is a critical capability for a company to

successfully differentiate. Our research found strong leaders, who set
clear direction, empower people, get out of the way and leverage every
aspect of the business.
• Entrepreneurial people. The differentiators we studied all had associates
who are excited, engaged and motivated. It has nothing to do with age,
and everything to do with a company’s culture, and with how employees
are rewarded and recognized. The associates were aware of and
constantly updated on costs, sales and profitability.
• Customer-centric focus. Differentiators find as many ways as possible to
wrap their arms around customers, open feedback channels, and make
customer relationships stronger and deeper. They perform at high levels
across each of the four Ps. They are having fun and their customers know
it!
• Process discipline. The companies researched are goal oriented and
focused on results. They have systems in place to measure progress
against goals and feedback loops to gather accurate data about
performance.
• Leverage. The differentiators in this study leverage everything. They
sweat to find nickels in cost savings, and find they add up to real dollars.
They are effective managers of their internal resources. They leverage
their relationships with vendors, associations, alliances and other
networks to extend their core capabilities.

Many if not all of the concepts discussed here are familiar to any seasoned
distribution executive. Yet as margins continue to come under fire and customers
find alternate sources of supply, it’s critical for a distributor to define and prove
the value provided “outside the product box.”
By taking a hard look at the most productive pathways for your company’s
capabilities, you can take the lead and stand apart from your competition by
defining how and proving why your company is different and better.

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