Make your commodities stand out - de-commoditize
Make your commodities stand out – de-commoditize
No matter what industry you’re in, chances are you have a few products or services in your line that are commodities. From food and beverage items to household products to daily services, commodities are everywhere and make bottom line profits harder and harder to attain.
Companies that sell commodities typically must offer low prices and deal with slim margins. Why? Because the customers’ perception of the product or service is one of ambivalence. In the customers’ mind, the product or service is just like everyone else’s, so there’s no reason to pay more for it. Whether the item is water, car brakes, an electric utility service, copy paper, or one of the millions of other commoditized offerings, customers believe what they get from one company is identical to what they can get from another.
So what’s a business to do? The answer is to de-commoditize…but not just once…continuously!
For example, suppose you sell flashlights. To customers, a flashlight is a flashlight and you can only charge so much for one. But what if you made your flashlight last twice as long? Now you can charge more for it. However, don’t stop there. Later you can add more unique aspects to your flashlight such as making it half the size or twice as bright. Now you can continue charging more for your flashlight.
Here’s another example: Water is water… until you put it in a bottle. Once you put water in a bottle, you can charge for it. You can then put the water in a fancier bottle and charge some more. You can also add some vitamins to it, give it a fancy name, and charge even more. Now you’re taken a commodity and you’ve de-commoditized it.
The fact is that every product and service can be de-commoditized repeatedly. Unfortunately, most businesses don’t do this. Instead, they come up with a new product or service and the milk it. They make their money on it and let the product or service become a commodity.
Realize that the minute you come up with something new, a competitor will copy it. As they do so, your de-commoditized and innovative product or service slowly becomes a commodity. The margins get thinner as time goes on. You find yourself competing more on price and eventually remove the product or service from your line.
Here’s a better approach: Instead of letting the margins get thinner and riding them down, you can get more efficient and effective. You can think creatively about your product or service so you can repackage it, redefine it, revamp it, or somehow make it unique in the marketplace again.
Follow trends
Pay close attention to the trends going on in your industry and with your customers. Based on the direction of change that you can see, what future trends can you identify? If you can accurately pinpoint where your industry or customers will be in the next few months or years (or what your customers will want), you can de-commoditize your offering and get that business.
For example, the product 7UP was a commodity for many years. 7UP and the other products like it are basically bubbly, clear flavored sugar water. For many years, 7UP was dealing with shrinking margins and lower sales. People were drinking less soda and more water and other non-carbonated drinks. Recognizing the trend for customers to want healthier drink options, 7UP de-commoditized their soda by taking our all the artificial flavorings and ingredients and making their product natural. After they launched their new “natural” campaign, sales of 7UP increased.
But, as is the nature of commoditization, over time competitors will start copying what 7UP did and the soda will become a commodity again. So instead of riding it back down again to decreasing sales and low margins, 7UP can take the next step and make all their natural ingredients organic. But rather that do what other companies do with the organic label, which is to stretch the definition, 7UP raised the bar and did organic the way it should be done. Now they’re de-commoditizing again. And as trends with their customers continue to change, so too should the soda.
Next time, I will share two additional suggestions and examples on how to make your products stand out in the marketplace again.
Daniel Burrus, one of the world's leading technology forecasters, business strategists, and author of six books
Copyright 2010 Author retains copyright. All Rights Reserved.
