We have all seen it…Commoditization…it’s an integral part of our daily lives today…both good and bad. No industry or business is immune any longer…regardless of whether you provide a product, service, or even run a non-profit organization. Somewhere, sometime, someone has come in and offered something better at a better price and taken away some customers and/or profitability…it’s our world.
The core concept behind a “commodity” is when something is viewed as equal value to the buyer so they choose to purchase based on some other factor, usually price or availability. Commodity trading started a long time ago and was considered a staple in the agriculture industry. It has since evolved to include virtually every product or service in the Internet Revolution we live in today.
You can compare it to when the commodity traders were buying something like corn. Corn was corn…so it came down to what price someone was going to pay for the corn…it was indistinguishable to the buyer and the traders. And there were lots of corn farms so it didn’t matter which farm they picked, they were all viewed to be the same. There was no differentiation of product so the only differentiator was price.
Fast forward to today and how consumers (and businesses) buy on the internet. No longer are there just one or two products to choose from, there are tens, hundreds, even thousands in the same category to choose from. This leads the consumer and others to view these as “non-differentiated” (like the corn) so the only way to determine which one to buy is price and availability. Their product has become a commodity.
And adding new a feature no longer differentiates the products…others come out with those same features and even more to leap frog ahead of the current product. So the original product can only compete by lowering its price to a level that might still attract a buyer. This is the new world we live in…and we enjoy it and hate it at the same time. If we are a consumer, we love it…lots of selection at great prices. If we are the seller we hate it because we now have hundreds of competitors and it is hard to differentiate from them so you end up competing on price.
The process of this happening is called COMMODITIZATION.
Given this is the state of the world today…and we do compete on a world level…how can you WIN! I have some ideas that might help you rethink where you are and how you can win out over all the others that are participating in this highly competitive commodity world.
The simplest way to think about how to move away from being commoditized is to focus on the opposite of what a commodity offers…differentiated value beyond price and availability. These are the foundations for KILLING A COMMODITY…so think in opposite terms and you are at the starting gate. It sounds simple, but it’s not quite as easy as you might think. Here’s the number one issue I see with leaders that happens in this area…
When someone says you should increase the “value to your customers,” the first thing that comes to mind is usually adding more features and functions to their products or services…this is heading in the wrong direction. It’s without a doubt the number one response I get when having this discussion with leaders. IT ISN’T ABOUT FEATURES AND FUNCTIONS! Why? Because these are also commodities…just not as easily recognized.
For example, say you have a tool/product that others in the market have. If you add some new functionality to it, it is great for the buyer and they see there is some increased value. So you think you have “differentiated” your product and have escaped being lumped in with all the other commodities. And you have…for a short moment. Then one of your competitors not only matches your new functionality, but adds one of their own. Now you are left with a lesser product in the eyes of your buyer and the only way to sell your product is to discount the price…back to the commodity game.
Features and functions are still commodities…they just give you a small lead time before someone else makes something better and “one-ups” you.
So the answer has to be something else. The answer is to CREATE SOMETHING OTHERS CAN’T EASILY COPY OR IMPROVE UPON. Sounds easy enough…but for most “product/service centric” companies it is really really difficult. They think in terms of features and functions because they are constantly thinking about their products or services. This is the “Commodity Spiral” and it has nowhere to go but down…in both price and profitability. To overcome this spiral, you have to break away from being product/service centric…focus on unique…offer something others can’t easily copy and add this to the product or service.
Leap frog and jump over your competitors by changing one aspect of your organization…your CUSTOMER EXPERIENCE.
An organizations’ Customer Experience has been proven over and over again to add incredible value to your customers and can’t be easily copied or duplicated by your competitors. It is something you create, own, and deliver in your own unique way with your own unique employees in a way that delights your customers and causes them to say, “WOW, I love the way I am treated here…it’s completely different than all your competitors.” When they say this, you WIN.
This is a proven and solid solution to break away from the commodity game and avoid commoditization. Sounds simple…it’s not. Not that it isn’t something you can’t DO, but it’s something that isn’t in your Vision, Mission, and Strategies of how the company operates. It isn’t the “passion” of the Owner or CEO…so it won’t get done. It isn’t part of your culture so it won’t be something all your employees embrace every day.
This is why it isn’t easy for organizations to switch from “product/service centric” to become “customer obsessed.”
The process can be very straightforward…we created a process for you in our first book, “Creating and Delivering Totally Awesome Customer Experiences.” But like any great Chef, knowing the ingredients and the process is not what makes a fabulous dish…it’s their passion, creativity, and desire to excel at it that turns them into a world class Chef so they deliver an enviable dish. It’s the same way for an organization…the recipe gets you a great dish…but the “passion, creativity, and uniqueness” is what creates a SPECTACULAR EXPERIENCE and a REMARKABLE COMPANY.
Analyze your own leadership, your leadership team, and the company culture…where are you today? The vast majority of organizations are still playing in the commodity game to one degree or another and experiencing the Commodity Spiral. If you think you can win at this long term, I wish you the best of luck. But if you’re tired of feeling like a ping pong ball in your industry and bouncing all over because of what others are doing, maybe it’s time to jump ahead of them and do something DIFFERENT. I hope this has you thinking…thinking of possibilities…thinking about what it would be like to stand alone in your market.
If it has and you want to know more about how this really works, what it takes, and why you should do it, shoot me a message and we’ll grab coffee and I can share with you some deeper insights. I can guarantee you one thing…you won’t think about your company in the same way by the time you finish your coffee!