Is your product a commodity?
As we think about the business that we are going to start or the new products/services we will be introducing into the market place, we should first evaluate where that business or product is positioned in the minds of the consumer.
What is a commodity?
A commodity is a product/service that the market place does not perceive has any differentiation. They are alike, and it does not make any difference which is chosen. It is the difference between a distinct brand and a generic. They all provide the same purpose and there is no difference in the benefits between them. Therefore, the only decision to buy is the price. Price is the determining factor. In this arena, the winner is the low-cost provider. The goal, then, would be to develop a business model that allows the company to operate at low costs so that it can charge low prices and still have enough margins to make a profit. All others will be pushed out of the market, unless they can do the same.
Many companies follow the market. Many make the market and some even change the market.
There are many reasons why a company chooses to follow, either consciously or unconsciously. One reason is that they do not see the market changing and do not realize or understand what the next product/service will be to satisfy the needs of the market place. They have taken their focus off the customer and are relaxed within their shell.
Another reason is that they may see the need but are too slow to react to those needs for one reason or another. Many companies are very process and procedure focused and believe that if they don’t have all their ducks in order, they cannot implement. By the time they have completed their strategy sessions, their I’s dotted, and t’s crossed, the market has gone by. This doesn’t seem to happen much as they continue to find issues that have not been defined or internal solutions for. Others have already jumped in and they are trying to catch up within a crowed space, that they no longer are really needed. Competitors are swimming around and prices are dropping, and the company now wonders why there isn’t any room for them. Most of this is culture driven.
Other reasons for being a follower is fear and comfort. The company is comfortable with what they are doing. They have a product that provides them with an enough cash flow, net income and wages and they have become complacent. They only start thinking about the issues when their organic growth starts to slack off. Organic growth is that growth that occurs because the current customers are growing and need more product/service. Organic growth is good but without enough new customers, organic growth will eventually decrease due to mergers/acquisitions, retirement of key players in those companies or simply companies closing shop and the owners retiring.
Look at the challenges and then work back to the cause or causes to understand and be able to find solutions. This process will help the company to provide solutions to their challenges. Real solutions can only be accomplished by identifying the cause and then making the necessary changes which in turn will aid in the implementation of the solutions.
In today’s environment of the digital era, big and small have come closer together. In the past, it was only the big companies that could afford the marketing and advertising to get the attention of the market but, today with social media and direct enewsletters and communication online, the costs have dramatically gone done. Therefore, it is now affordable to most any businesses.
How to prevent the Commodity Crunch
- Understand what the company is providing and to whom. It is crucial to identify the target market and even to narrow it down to a niche market (smaller than a target) but, make sure this market is large enough to provide the revenue and profit to be financially beneficial.
- Understand that market. Their needs and what they value. This is a moving target. It changes and the environment changes. If you do not understand this, it is literally impossible to know what benefits to provide, except for hit and miss luck.
- Make a list of all the competitors in that space and what they are providing-not just the product but the core (benefits) and augmented (other services before and after purchase).
- Compare those with what you intend to provide
- Cross off the similarities and if there are no differences, why are you intending to enter that market? If there are differences, why aren’t the others providing those services? A good question to consider before jumping in and thinking that you have different values that you are delivering. Maybe the others have tried those, and the market does not value them and therefore does not consider those either value added or benefits.
- Be innovative-provide something new that will be valued. Put a different spin on what is being provided. Refresh the product and services offered. Remember, today the lifecycle of products is much shorter than in the past and the profitability time of products have been reduced drastically. Products have short times to make a profit and competitors enter sooner and the information available to all is universal.
- Package your product with augmented items such as free deliver, warrantees and guarantees, return policies, easy return policy, payment terms, loyalty programs, free seminar and workshops, etc.
Stay alert. Be sharp. Understand how the consumer preferences are changing before they change. It is not uncommon for companies to move out of one segment of the market into another as their space becomes crowded with competitors. You can fight or create new space.