Giving Human Beings What They Want
It seems that everything in the marketplace today is becoming a commodity, from kumquats to computers - even cars. Is there anything you need today that can't be bought almost like a bushel of corn?
As the commoditization phenomenon expands, the first thing to notice is that, in many cases, prices come down, which creates winners and losers. For example:
Consumers: Any time prices come down, consumers win. Especially those who always look for the lowest price.
Big business: These guys do okay when prices come down. They have the ability to shop for goods and labor on the world market which, when combined with their volume purchasing power, allows them to be successful with tight gross profit margins.
Small business: This group has both winners and losers. The winners are small business owners who understand that low margin commoditization is a euphemism for "you can have it any way you want, as long as it's the way we have it," and resist focusing on customers who are happy with that attitude. The losers are everybody else.
So how does low margin commoditization by the Big Boxes translate into a winning scenario for some small businesses? It's as simple as one, two.
Need vs. Want
Modern human existence breaks down into two very basic components: the things we need and the things we want. We need to eat, but we want to dine. We need shelter, but we want a home. We need to clothe our bodies, but we want a certain look.
Small businesses that focus on the things humans need will always have to compete head-up with the Big Box competitors with the three things that are essential for this business strategy: price, location, and advertising. Here's why this strategy is a loser for a small business:
1. Price. Small business can't compete on price, because the Big Boxes can sell tires, TVs, and tools cheaper than we can buy them at our vendor's highest discount. So, on the price issue, the good news is also the bad news: That ship has already sailed, and we weren't on it. Forget price!
2. Location. Small businesses usually can't compete on location, because the Big Boys can afford to pay way too much for that corner with all the traffic.
3. Advertising. Small businesses can't out-shout the Big Boxes because, in the world of advertising, they're a foghorn and we're a piccolo.
So, through the timeless process of deductive reasoning, the only business model that will work consistently for the 21st century small business is to focus on what human beings want, not what they need.
Let's Look At Those Three Once More
Now, let's revisit the same three areas above and look at how we can actually use them as leverage in our small business model.
1. Price. Haven't you noticed that most folks are only picky about price when they're buying things they need? But when they want something, they're more likely to pay a little more for that certain element of specialness. Small businesses are the best in the world at taking a basic product and creating a special human experience, plus -- and this is the really good news -- a little better gross profit margin. For example:
A steak is a steak until a family restaurant adds its unique marinade, atmosphere, and even a little theater. Why would humans drive right by Outback and pay $5 more per entrée at this family restaurant? For food? Nope. They do it because they want something special and unique. Only a small business can deliver that.
A bar of soap is as basic as anything in the world, until a young mother with a home-based business makes her own brand with a unique fragrance, a not-so-uniform shape, and ties a little ribbon around it. Do her customers pay 100% more for her soap because it will clean their bodies better? Hardly. They'll pay $2 for a silly bar of soap because they want something extra, which includes knowing the face and the name of the person who actually made this product for them. You only get this from a small business.
2. Location. Your model won't need the corner property with all the traffic. Customers can park within a few feet of your front door instead of in a forty-acre parking lot. Plus, you've made it cool to drive a couple of blocks because your storefront looks more like they're coming home than checking in to an institution.
The best recipe for increased net profit is simply equal parts of lower operating expenses, like real estate costs, and higher gross profit margins, like the ones you'll get from the special way you deliver your products and services.
3. Advertising. Small business marketing plans should absolutely include advertising. But your strategy should be to focus on the discerning customers who like the sweet sounds of your piccolo, rather than the tin-eared masses that only respond to a foghorn.
Have you ever heard anyone go on and on about a special experience in Wal-Mart? Didn't think so. But part of your piccolo aria will be played by customers who can't stop talking about how they were touched by the way you gave them what they wanted -- not what they needed -- as only a small business can do.
One last thing
In the 21st century, there is another very interesting phenomenon emerging concurrent with commoditization: More and more, humans want to save time more than they need to save money.
In a world of commoditization, the small businesses that will be most successful are the ones who understand this emerging want, and are building their business model around it. And here's more good news for small businesses: Saving customers time is just as profitable as that other thing we do really well: creating something special and unique.
Write this on a rock... The two things humans most desire in the 21st century -- getting what they want and saving time -- are two of the things that you do better than anyone else. Congratulations.
Jim Blasingame
Small Business Expert and host of The Small Business Advocate Show
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