Business Case Example:
Without a Differentiation Strategy You Risk New Product Failure

Success Maze

The lack of a differentiation strategy for one company caused their investors to be very concerned. The company was in big trouble! The board asked me to dive in and give them recommendations to help them decide if further funding made sense.

This company focused on home networking and had developed a system to deliver high-speed signals over existing phone wiring. After about two years of selling their product and millions of dollars in venture funding, they only had a few field trials and a lone contract to resell their product, with virtually no revenue produced.

A new product failure in the market was a real possibility here.

I quickly looked at the usual suspects: technology issues, the product not working as advertised, limited feature set, competition, cost, differentiation strategy, target market, and the sales effort.

First some background. Home phone wiring is readily available in most homes and apartments, particularly the U.S. But, telephone outlets are not necessarily in every room. Also, in some cases, the phone wire has other signals on the line such as Digital Subscriber Line (DSL) for broadband access. Added to that is the fact that many newer homes are built with fewer phone jacks.

Lack of Vision and No Differentiation Strategy is Risky

Although the product worked well, the value proposition was not strong enough for the market segment they were targeting.

This company targeted primarily telephone companies for their consumer market segments. Yes, it solved the problem of moving high-speed signals around the home, which is critical to the mission of telephone companies. But it wasn't compelling.

There were many specific problems, listed below, however it all started with the inability to understand where the market was headed and how fast it would get there. In other words, the founder and management did not observe and react fast enough to unfolding market events. The competition certainly was moving more rapidly.

This added up to a very poor differentiation strategy.

Too bad. Providing seamless Internet access and video anywhere in the home was and is a top priority for telephone and cable providers. This company's solution worked, but the lack of vision and marketing strategy planning became a recipe for a new product failure.

The key issues broke down to:

  • The product cost in the $200 to $300 range and there was no way an average consumer would be able to install it by themselves - by telephone company standards this is not very positive;
  • Telephone companies view themselves as being in the service business, not the product business, and want to push as much of the cost of a service onto their customers or partners. They knew that consumers would not pay that much;
  • But the real cost was really higher because it required a professional installation. In fact, it was worse because depending on the wiring topology of the house, the exact equipment configuration would change. This only served to drive up the installation cost – the phone company installer needed to carry enough inventory on the truck to account for this, install times could vary greatly, resulting in variable costs for time and the product instead of the fixed costs their financial people prefer;
  • Also, telephone companies deal in huge numbers, hundred of thousand if not millions for everything they do - easy and uniform installs is the way they like to go. Not the case here;
  • Another roadblock was Wi-Fi. Telephone companies love Wi-Fi, believing it can give consumers broadband coverage throughout the house;
  • Lastly, the company was positioning their solution AGAINST Wi-Fi instead of as a complementary solution to Wi-Fi, to fill in the gaps in coverage that frequently occur. Wi-Fi has become a clear choice among consumers, so this was like saying that your favorite aunt is ugly! To add insult to injury, the company had finally come out with a Wi-Fi module that could be optionally added on to their telephone outlet, but it was an old flavor of Wi-Fi. Good idea, bad execution.

The lesson from this business case example is that the company did not understand the market and how fluid it is. They designed and built a product that worked wonderfully but still didn't solve the real problems of the target market, much less in a way that made the buyer say WOW.

In fact, they targeted the wrong market segment – it should have been the small to medium sized commercial building market, although that had its own set of issues, but was much more viable for this solution.

The takeaway: you need a differentiation strategy starting at day one, well before you're ready to take your product or service to market. A solid differentiation strategy will improve your odds for success. 

Other Related Articles You'll Enjoy Reading:

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Make sure your assumptions are based on rock-solid homework.

Build a Powerful Value Proposition Into Your Story 
What's your value proposition? You may be surprised how hard it is to answer this. Hint: Product differentiation is just part of the picture.

Plan, Connect, Sell, and Then Repeat the Process 
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