“Commoditization” represents a massive shift in the 21st century economy. It’s a kind of ugly word that reflects an even uglier situation. Many sellers are struggling to fight it. Are you unconsciously commoditizing your own products and services?
A commodity is a product that markets demand but that is relatively undifferentiated by brand. Think of unprocessed produce like rice, corn, or soybeans. Market price fluctuates on the basis of supply and demand, not features and benefits. There’s nothing wrong with commodities—markets need them and companies make money buying and selling them.
The trouble comes when a product or service that was once considered “premium” loses its cachet and buyers start treating it like a commodity. Industries fighting this trend today include real estate sales, pharmaceuticals, auto sales, financial services, internet services—markets where products and services used to be highly differentiated, or in short supply, or where sellers had the edge in product knowledge, but are now undercut by much cheaper and easier ways for buyers to get what they need. In any industry vertical, companies struggle to avoid the commodity trap. Perhaps yours is one of them.
The most dangerous position of all is when you unintentionally “commoditize” yourself, as I see clients do all too often. It can happen like this:
- “Free consulting.” Give away too much of your wisdom up front and your buyer will not value what you have left to sell. You’re at risk if you write proposals too early or respondi to RFP/RFQ requirements when the company doesn’t know you. You run the great risk of giving away your methods, processes and prices for nothing.
The solution? Establish your value based on outcomes that you produce, not the methods by which you achieve them. Presenting your distinctive value proposition to your highest-level buyers, those who are focused on business results and not the details of your method.
- “Cut rate.” The buyer will not value your product or service more than you do. If you lead with a discounted price, or discount your price whenever they ask you to, you seriously undermine your value proposition. If you discount without an equal reduction in scope, you have no real price point. The buyer will continue to want it for less, and there’s no end to that. If you want to offer different levels of pricing, base them on different levels of value rather than discounting. If the buyer is going to select a vendor based solely on discounted prices, you don’t want to win that business unless you are selling a commodity.
What to do? When they ask for a discount—and they will—ask them what part of the offer they would like to eliminate or cut back in order to fit their budget. You are willing to negotiate but not simply to cut your price.
- “Earn It.” Accept a contract for a small piece of business at an undercut price in hopes of earning the right to do more at better margins. In my experience, this strategy leaves you pigeonholed in a small, cheap vendor space that you can’t escape from. The kind of work you accept teaches customers who you are and what you sell. If you are inadvertently teaching “small”, “cheap,” and “niche,” that’s how the buyer will identify you. National firms don’t buy from the companies that make cheap sales to their local outlets. It’s very hard and very expensive to move from one silo to another inside a large company if you are not positioned well in the first place.
How to handle this? Don’t accept bad business or undercut your price ever as a stepping-stone. To get started in a new company, work towards establishing a good piece of business for your first sale.
- “Not on target.” When you violate your “target filter” (my term for the set of criteria that defines your ideal customer) by going after business that is wrong for you, you devalue yourself and what you are selling. It means you don’t trust your strategy, you don’t trust the image you intended to present to your market, and you don’t trust your ability to sell the right things to the right customers. Every client has stories about the “killer whale” – the one you landed that was all wrong for you. If you’re honest with yourself, you knew all along it wasn’t a good deal for you.
This is an easy fix. Review and revise your target filter, if need be, until you find better companies. But until then, learn to say NO. And stick to it.
Markets are constantly commoditizing products and services—it’s a natural outcome of innovation and globalization. If you sell something unique or differentiated, make sure you’re not helping the market commoditize you.