Avoiding the “Commodity Trap”

Years ago, you had a unique proposition that spoke to your customers and drove strong sales. Perhaps it was a reputation for good quality, consistency, or safety. Now, that same proposition is considered merely a given by customers.  They expect those attributes in your products, leaving your brand devoid of a special selling point. Your sales have slumped. Sound familiar? You’ve entered the commodity trap, and you’re not alone.

The commodity trap is a brand’s worst nightmare, but it’s becoming increasingly common as competing products and service providers steal the attention of former loyalists, particularly on the Internet. Today’s consumer has more choices than ever, and they’ve developed a “commoditized attitude” about products. In other words, they may spend big bucks for items they see as truly innovative — the newest iPhone, for example — but they see most other things like home goods, food, clothing, hotels, you name it, as interchangeable. That drives down margins and prices for everyone, including formerly booming brands. Good news for consumers. Bad news for producers.

The truth is, when a company is perceived as adding no real value other than capacity or common service, it becomes just another option, and its customers will likely move on to a competitor offering a lower price. If that happens to you, your entire business model needs adjusting.

How do you get out of the commodity trap? Consider the following examples: Home Depot vs. Lowe’s; Kohl’s vs. Belk; Harris Teeter vs. Whole Foods. In theory, these companies do basically the same things. Home Depot and Lowe’s sell home improvement supplies; Kohl’s and Belk sell clothing and home decor; and Harris Teeter and Whole Foods sell groceries. But the ones who are thriving have recognized consumer shifts and have changed their approaches. Lowe’s has built share in the home improvement business by gearing its products and messages to women; Kohl’s has successfully placed traditional department store merchandise in a “discount” store category; Whole foods provides a unique in-store experience. They’ve gone farther down the path of lifestyle and values marketing than their competitors, and it’s paying off. You need to do the same.

Here are four strategies we recommend to minimize the commoditized nature of businesses:

  1. Sharpen your strategy, and make sure you are valuable and distinctive.  

    Make sure your communications and marketing tools capture your personality and the brand experiences your customers and prospect value. And while we are on messaging, make sure your referral channels can easily share your key message.
  2. Change your sales approach.

    Meet your customers with intent and listen closely to their concerns. Ask questions so you can be proactive (not reactive) to their needs. This is “consultative selling”, and it requires dialogue between you and the buyer. Put the processes and methodologies in place internally so you don’t shotgun through the sales process. Consultative sales build trust, and that does wonders for establishing value.
  3. Establish the right pricing structure.

    Take a long, hard look at your product, service, and lanes, and make sure to establish a pricing approach that doesn’t just establish you as the lowest-cost provider. In addition, develop more value-added options to your overall packages to discourage customers from being able to make easy cost comparisons between you and your competitors.
  4. Target the right people.

    Instead of chasing every sale or transaction, focus on customers willing to pay what your service or product is worth. Part of this process involves you deciding which customers you do NOT want to serve. Don’t panic about “losing” customers this way. Focus on the market share of customers that are “right” for your business; don’t worry about losing the rest. We promise this will increase your revenue.
  5. Compensate the behavior you want to see.

    Your employees are the face of your business. If you want to grow “share of customer” rather than just amping up transaction count in your business, then reward your employees for the results they’re able to generate by collaborating with your customers to be more strategic about the value you provide. Consider compensating your sales force on profit margin, not sales revenue, so you know you’re getting the right customers. This is an advanced technique we can help you establish.

Whatever your approach to commoditization, try to innovate at all costs to avoid it. The last thing you want is to be seen as average and, therefore, left behind.