Are you in commodity hell?
Are you pressured into lowering your prices while working harder-and-harder?
What do celebrity attorneys, designer dresses, and Porsches have in common? All of them have been on the winning side of commoditization.
Companies are commoditized by low cost competitors – such as legal service websites, new products or imitations.
Commoditization can take many forms, but it is always dangerous and it can put you out of business.
As your business enters commodity hell it finds its competitive position eroded so that it can no longer command premium price in its market. Commodities are all competing on price, a game with few winners.
There are many reasons the lead to commodity hell, including companies failing to innovate, developing low quality products, or ignoring their market place. When company leaders fall asleep at the wheel their products are commoditized.
Good business leaders see commoditization closing in on them and they act quickly.
If a business is too late realizing that their product is commoditized, it will immediately tries to compete on price. In essence, they are digging themselves deeper into commodity hell.
Lower prices result in thinner profit margins, resulting in an avalanche of negative effects such as lower budgets for research and development, marketing, customer services.
When you lower your prices you say to the world, “We are not as good as we used to be!”
Work with your marketing team to avoid commodity hell.
Your marketing team can help you create a competitive analysis of your market, identifying your threats and opportunities. When you clearly understand your position on the market you can act proactively instead of reacting late to events.
As Starbucks managed to decommoditized coffee, it did not compete on price. Your business too, can redefine the way your customer see price.
For example, in your price you can include the care you take to support your service after the sale was made.
Moving your business from a transactional business to a trusted advisor role.
Always be alert and frantically search for commodity hell red flags.
Here are three ways to fight commoditization:
- Upgrade or improve your product or service. Force your competitors to up their game.
- Sell your product/service with additional products or services.
- Focus on more profitable verticals.
- Fire your least profitable customers.
- Complicate your pricing structure so customers can’t easily make side-by-side comparisons.