The Harvard Business School teaches that, “Like death and taxes, commoditization of your products is a given.” However, this doesn’t mean you must accept eventual commoditization as a death sentence to your business. On the contrary, by paying attention, you can proactively shift for strategic advantage and competitive advantage.
There are four reasons a commodity mindset occurs, and in every instance, these reasons should be viewed as warning signs that it’s time for a strategic re-focus:
Reason #1: Marketplace perception that the offering is pretty much the same and can be obtained anywhere with no differentiation, added value or uniqueness associated with
Reason #2: Perception that the offering can be obtained easily from a wide array of suppliers and providers.
Reason #3: Pricing becomes the primary focus of competitors’ promotions.
Reason #4: Appearance of being more transaction-based than relationship-based with customers, suppliers and employees - everyone is viewed as easily replaceable.
Here’s what you can do to shift from commodity to strategic advantage:
1. Repackage and deliver: When your product or service appears to be the same within your marketplace no matter where it is being purchased, you need to strategically identify ways to differentiate your offering. Can it be bundled with another offering for added value? Can it be customized in some way to appear to meet specific needs of niche markets? Can it be repackaged for consideration by markets not previously approached or considered?
2. Innovate and re-engineer: To create preference of your offerings over a large pool of competitors, you need to demonstrate you are offering something that cannot be obtained anywhere else. What could be proprietary to your company and only your company? And if it is, how can you protect this uniqueness for competitive advantage and marketplace preference? Apple accomplished this by staying one step ahead of competition as well as what the marketplace even realizes it needs.
However, you don’t have to be an innovator to excel against a mass of competitors. You can also reinvent your company or your offerings by paying attention to what already exists, but is not being done within your industry. Take the example of an ink cartridge remanufacturer that was able to re-engineer a better process. The company found itself successfully competing and winning against original equipment manufacturers, saving customers money while charging a higher price than other remanufactured cartridges. This worked because the company’s new process provided a product with better yield than a brand-new cartridge.
Bottom Line Rule #4
Know your value. Make that value
indisputable and it will be profitable.
3. Play a best-value offense: Too many companies operate from a defensive mode of operations and then wonder why they can never get ahead. Your focus should always be strategically on the offensive. No matter what business you are in, you have three best-value offenses you can take in your business. To effectively compete and differentiate, choose one of the offenses to do better than any competitor. Attempt to be at par or slightly better than competitors, if possible, in the second selected offense.
Best Price: When it comes to being a small business, best pricing is oftentimes confused with low pricing, which can immediately place you at disadvantage compared to a larger competitor if you are doing it to get your foot in the door. Don't believe it will work because it rarely does in the long term. The only way best price can work for you is if you bring best value to the table, which means you have determined value-added pricing, not the cheapest. Typically the value add comes from one of the other two offenses. So keep reading.
Best Total Solutions: Best total solutions is about being the answer. It can mean you are a one-stop shop providing all that your prospect or customer needs in your areas of competency and capability. It means you solve problems and become intimately engaged with your customers' issues and concerns to help them find answers. This can also mean having an arsenal of tools and an expansive network of resources to meet their needs beyond your capabilities so your company is viewed as a go-to source of insights, options and answers.
Best Product or Service: Having the best product or service means you are putting a stake in the ground proclaiming you are the best with plenty to validated this to be the case. It can be emphasized in a variety of ways depending on the industry, target markets, and what is most important to focus upon. It could be highest quality or performance reinforced by industry standards of excellence. It could mean being an industry leader with the industry recognizing you for your contributions. It could mean award-winning in everything from customer service or innovation to creative solutions and outcomes. When you claim to provide a best product or service, you need to be willing to validate this on an ongoing basis through awards, recognitions, testimonials, and reviews.
It is unlikely that you can achieve all three, so your least appealing offense is not a focus at all. Your ability to leverage your advantage doing one exceptionally well and the other slightly better redirects a prospect's attention where you want it to be. A local propane company was caught in commodity pricing, where companies were only pennies different from one another per gallon. Identifying key service differentiators, the family-owned company quickly proved that you could charge a little more per gallon and capture share of wallet and heart in the marketplace with great service, a can-do attitude and community engagement.
Momentum Building Decision #8
Value enhancing should be an everyday focus.
4. Take advantage of niches and market segmentation: When pricing becomes the primary focus of multiple competitors, this is an indicator that the industry believes the offering is being viewed as a commodity by buyers. The reality is, no matter what type of offering or industry, there are always buyers ready and willing to spend more because price is not their sole deciding factor. For some buyers, value for money spent is more important than a low price. For other buyers, service and problem-solving is worth paying more.
5. Redefine incentives and rewards: Do you push your sales team to meet monthly sales goals with month-end special promotions and incentives? Do customers only hear from your company when a product or offering is being pushed or it is that end-of-month crunch time? Do you only recognize your sales people for sales, and forget to reward the rest of your team for their contributions? Are your incentives all about money?
If you answered yes to any of these questions, you may be suffering from viewing your customers or your own employees as commodities. When you make transactions more important than people, you are basically telling some of your team or your customers that they are easily replaceable.
Momentum Building Decision #10
A highly desired corporate culture
drives retention and company worth.
Your ability to compete is directly linked to your aptitude for continually differentiating your company as one whose offerings are preferred and sought out within the marketplace. Complacency is the breeding ground for commodity, whereas being proactive, agile and strategic is how you stay one step ahead of inevitable.
Quality Propane, Inc. – Propane is Propane. Service is Everything!
Quality Propane, Inc., owned by husband and wife, Terry and Vickie Rudisill, was six months into its operation in 2004 and feeling the heat from competitors that had been in business for 30 years. They were in a price-driven commodity business.
To make the challenge even more daunting, they had a two-year non-compete agreement that eliminated the ability to go after a large share of customers in their immediate service area. Their strategy had to focus on building awareness to attract customers to their company. During a strategy session to help build a plan to overcome these obstacles, their brand and how it was going to evolve was discussed. Being a home-based operation at the time, they understood the importance of their visual and physical image. They had done an excellent job developing a distinctive logo with corporate colors and were consistently using them on their delivery vehicle, uniforms, and promotional materials. Missing from these efforts was a strong verbal message coupled with the experience their customers could expect by doing business with them. They embraced the process and launched out with the positioning, “Propane is propane. Service is everything!”
They defined and embraced their commitment to offering exceptional service operationally, and then implemented a grassroots core marketing initiative to get their brand known in the marketplace with exceptional results. Just 18 months after launching their campaign, readers of a weekly newspaper voted them the best propane gas company in the area. Their efforts paid off with growth that has resulted in a corporate office, additional employees, an expanded service area served by multiple vehicles delivering propane to residential, corporate and agricultural customers.
Yours in economic vitality,
SPECIAL NOTE: BizGrowth Inc.'s Attraction/Retention Model (below) was used as a basis of reference for identifying and focusing on ways to make service the pinnacle of Quality Propane's success.