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Is your product or service viewed as a commodity in the marketplace? If so, that can cause problems from a pricing and competitive perspective.
If you are a commodity business but don’t want to be one, here are eight techniques you can use to “de-commodify your business.”
WHAT IS A COMMODITY?
First, let’s define what we mean by a “commodity” and look at some of the advantages and disadvantages of this type of business.
There are two defining factors of commodities—they can be purchased from many places, and they are not differentiated.
Some classic examples of commodities include corn, bleach, coffee beans, gasoline, and gold. Any substance that’s effectively thesameregardless of which manufacturer or brand you buy it from is a commodity.
Products can also be viewed by customers as a commodity even if they are somewhat different from the competition if those differences are not known or valued.
In today’s world, there are two ways to be commoditized.
The first is if youmanufacturea product that is viewed as a commodity, like gasoline. It’s difficult to sell your fuel for more than anyone else because you can only charge what the market is willing to pay.
The second is to be a retailer, wholesaler or distributor that sells products that arewidelyavailable in the marketplace. For example, while the iPhone is not a commodity, it's highly differentiated, retailers of the iPhone may be perceived as one since the same iPhone model can be purchased from Amazon, Best Buy, Verizon, Sprint, and others.
If customers believe it doesn’t matter whether they buy from you or someone else, you are a commodity.
ADVANTAGES OF BEING A COMMODITY
Being a commodity is notallbad. Let’s look at some of the advantages.
LOW COST MARKETING AND SALES
One advantage of being considered a commodity, is that if there’s a market for your product or service, you will likely have a low cost for marketing and sales. Buyers understand exactly what your product is, there is no need to explain it, and since you aren’t claiming any differentiation, you don’t need to spend a lot of energy on telling a fancy story.
POTENTIAL HIGHER PROFITS
Additionally, if the price of your commodity product shoots up in the marketplace, your profit margin may be higher without you needing to make any changes to your product offering or sales strategy.
DISADVANTAGE
Most businesses, however, don’t want to be commoditized, and there's one main reason.
THE primary disadvantage of being a true commodity is that you must differentiate primarily on price. People generally aren’t willing to pay more foryourcorn than someone else’s, if it’s the same product no matter who they purchase it from.
And when you are fighting for customers and the only way to differentiate is on price, the tendency is to eat into your profit margin in order to compete, making it difficult to run a healthy business.
8 WAYS TO DIFFERENTIATE YOURSELF IN THE MARKETPLACE
So, if your product is considered a commodity, and you don’t want to be one, what can you do?
There are eight primary techniques to transform a commodity into a differentiated offering. You don’t need to use all eight to be successful but it can be most effective to combine several of these together.
RELATIONSHIP
One way to differentiate yourself is by building relationships with customers. By doing this, people may purchase your product simply because they enjoy the interaction with your company.
For example, if you’re a plumber, and you’ve built relationships with customers and they’ve been using your services for years, they may keep hiring you because of the relationship even if they feel that pretty much any plumber can fix their leaky sink.
FEATURES
Another way to differentiate your commodity product is with features. Perhaps you can add a new component to your product that competitors don’t have.
For example, a lot of brands make cameras. Sony, Panasonic, Fujifilm, Nikon and Canon all have similar models. To avoid commoditization, most successful brands have added unique features to their cameras to differentiate themselves such as better low light performance, flip up screens or a more powerful flash.
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BRAND
Companies that sell commodities will often seek to differentiate from the competition by establishing a unique brand personality and visual identity.
A great example of a company that uses this strategy is Clorox. Bleach is atruecommodity because it’s a chemical compound. All pure bleach on the market isexactlythe same, but customers recognize the Clorox brand, and that makes them reach for Clorox products as opposed to others.
QUALITY/PURITY
Another way to differentiate a commodity is by positioning your product or service as higher quality or morepurethan your competitors.
Let’s look at a bookkeeping service as an example. Pretty much all bookkeepers can offer similar services, but maybeyourbookkeeping service is overseen by an expert with twenty-five years of professional experience.
In the customer’s eyes, that may be a reason to hire you, instead of someone else.
CUSTOMER SERVICE
Customers may be able to purchase your product or service from other places, but may prefer you if you provide superior customer service.
Let’s look at Apple’s retail stores as an example. There are many places where consumers can purchase an iPhone, as mentioned earlier. But, it may be perceived that the Apple store gives a better customer experience than Best Buy or Verizon.
Apple positions their store employees as being more knowledgeable about the product, and more able to help customers pick therightphone for them. Also, they offer the added benefit of the Genius Bar service, in case you have a problem with your iPhone and need to come back to have it looked at.
EASE OF ACCESS
As a commodity, you can differentiate based on howeasilyyou make your products available to customers.
An example of a company that does this well is 7-Eleven convenience stores. In some cities it feels like they have a store on every corner, and in those places, you are usually closer to a 7-Eleven than a grocery store.
There isn’t anything at 7-Eleven that you can’t buy elsewhere, but it’sconvenientto go there and pick up what you need quickly. Customers are willing to pay a higher price for a gallon of milk at 7-Eleven because it’s easy to access.
BUNDLING
Another option is to differentiate by bundling a commodity product with other things. The bundle can include non-commodity items, or it can be a unique bundle of multiple commodities thatonly youare selling together.
The goal is to package the product or service in a way that makes the customerfeellike they are getting a better deal by purchasing the bundle.
Let’s use a travel agency as an example. Travel agents sell airline tickets, which can be purchased from dozens of places for roughly the same price.
A travel agent may choose to bundle together airfare, a resort stay, meals, tickets to a show, and guided tours all together. Although these items can be purchased individually elsewhere, no one else is offering that exact same bundle.
PRICE STRUCTURES & GUARANTEES
Offering different pricing structures for a product or service is another way to differentiate a commodity.
An example of a company using a different pricing structure to differentiate is Amazon Prime. All e-commerce retailers offer shipping services, but it’s often added on to the customer’s purchase at checkout. Amazon uses a different pricing structure for their prime members. They pay a flat annual fee, and then are given free two day shipping with every purchase.
Guarantees or warrantees are similar. If you are selling the same Lenovo laptop that consumers can buy from a number of retailers, you may choose to double the manufacturer’s warranty to differentiate yourself. When customers purchase fromyou, they get that additional benefit.
Although being a commoditycanhave its advantages, if you’re interested in differentiating your product or service to be able to charge more of a premium, you can use these eight methods to hopefully win more customers, and encourage them to choose your brand over competitors.
In myWall Street Journalbestselling book,Winning Digital Customers: The Antidote to Irrelevance, I provide many additional techniques to help you differentiate products in a digital age. This information can be applied to business across all industries. You can download the first chapter for freehere, or you can purchase the hardcover bookhere.
Your Turn:
Have you ever had to differentiate a commodity product? If so, did you utilize one of the methods mentioned in this newsletter? Or did you do something completely different? I’d love to hear form you in the comments.
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Howard Tiersky is the founder ofFROM, The Digital Transformation Agencywhere he works with leading brands on Digital Transformation.
