Blog

Beating Commoditization

While there are encouraging signs of better days to come for some industries, the recession continues to take its toll as competing companies slash prices in order to survive. Especially hard hit are those that didn’t crack the commoditization code before the economic downturn. Industries with a low barrier to entry are even more prone to competitive price pressure because buyers see no difference between providers except price.

Some reasons why your product or service may be viewed as a commodity

• Because it actually is a commodity with no differentiation
• It differentiates but in ways that are not valuable a buyer
• It differentiates in ways that should be important to a savvy buyer but he doesn’t get it and your sales team has not successfully conveyed your value proposition

What you can do?

Instead of focusing on the “sale”, engage the client in a consultitative sales process to learn first-hand what his challenges are and to identify other needs your firm may be able to meet. By using this approach your sales people can exhibit the value to the client of their unique strategic thinking skills before selling the product or service. This will be a major shift in strategy for organizations that have never had such discussions with their clients in the past. For those that have, the process has paid off handsomely.

To be effective you’ll need to:

• Invest in consultative selling skills development for the sales team
• Profile sales pros who are good at strategic thinking/selling
• Know your client’s industry and business, top to bottom
• Know your competitors’ strengths and weaknesses
• Know your strengths and weaknesses
• Champion this new strategy among your team

Before engaging a prospective client:

• Research the firm and its industry so you are knowledgeable about key issues
• Validate that you are a good fit for them
• Quickly confirm that they are not a “commodity buyer” who is only interested in discussing price and unlikely to change buying philosophy
• Identify the value to you of the opportunity (e.g. profitable, growth potential, strategic etc)
• Be sure you have the capacity to deliver the service and support you’re committing to provide

Some differentiators that don’t work and why:

Technology: It’s expected and can generally be replicated so it’s not a sustainable differentiator

Customer Service: Buyers are too jaded to believe this since everyone makes the same claim

Added Value: You can only give away so much for free

Product/Service Bundling: Successfully drives prices (and profits) down

The overarching conclusion is that in a commoditized market you have to think out of the box. With valuable input from the client (which can only come from a consultitative sales process), and strategic thinking on the part of your sales pros you will differentiate your firm as being truly unique in ways that are valuable to the client. When you are able to help your client achieve his larger goals you’ll be the only fish in the pond.

Note: Many of the tips and strategies in this article come from challenges I have wrestled with over the years in differentiating my own businesses along with lessons learned from helping other entrepreneurs navigate their commoditized markets.

Are there tactics or strategies for beating commoditiztion that you have been successful with? Please join the discussion by sharing your own experiences in overcoming commoditization while remaining sensitive to client confidentiality. Also feel free to post questions you may have for any others in this discussion.