When you’re intent on a goal and want to be able to plot the shortest and easiest course to reach it, obstacles in the way can be discouraging and frustrating. But, if you’re purposely maneuvering through an obstacle course, they become exhilarating challenges to attack and overcome.
With that analogy in mind, we’re going to dive into the five most common obstacles that companies have to overcome to beat back margin compression. This is the first in a series of five posts on this topic.
Why don’t you want to be in a commodity business?
You already know and understand the danger of having your products or services commoditized through market pressure, competition, or the inevitable march of time. When this happens, customers can no longer distinguish what makes your product or service different from any other, and so there’s no way to explain to them why it’s better.
The end result is a never-ending price decline because being the cheapest is the only fool-proof way to get the consumer’s attention once you’re viewed as a commodity.
This oversimplifies the situation to some extent, but it makes the point. You should be working hard to continually differentiate your offerings so that they aren’t viewed as a commodity by your customer.
How can you inadvertently commoditize yourself?
No business strategically plans self-commoditization. It happens while attention is focused elsewhere – for instance, on the 91-day quarterly sales cycle that demands just enough sales to keep the lights on, by any means necessary.
Self-commoditization often occurs as a result of inaction rather than specific actions the company takes. For instance, if salespeople have been instructed to protect volume at all costs, the resulting explosion of discounts will lend credence to the customer’s view of your products as commodities.
Similarly, if your marketing team routinely markets each product based on its individual features and benefits, but has no knowledge or no understanding of how various products and services interconnect and appeal to various customers, they’re marketing a commodity.
If your leadership team has no clear strategy for continual differentiation of the product lines and supplemental service offerings that make up the company’s overall value promise, they’re leading the company toward self-commoditization.
Again, none of this happens intentionally. But failure to notice the symptoms and turn the situation around can be disastrous.
How can self-commoditization be reversed and avoided?
Doing so requires a fundamental shift in the business strategies surrounding a company’s products and services.
Customers can no longer be viewed as a collective whole, but must be intelligently segmented so that custom, optimized combinations of product features and supportive services can provide maximum value to each customer. Rather than just viewing what you do as selling products, your company has to realize that what it’s really selling are customer experiences, and evolve the offerings to maximize the impact of the experiences you’re selling.
At the same time, sales has to learn and accept that there are likely customers they are currently struggling to keep that will never be a perfect fit for the experiences the company provides. These customers should be allowed to move along to an alternative product in favor of finding and securing new customers who will derive more value from the product/service combinations the company provides.
This strategic shift can be accomplished using what we call the Integrated Commercial Strategy (ICS). If you’re concerned that self-commoditization may be affecting your organization and you’d like to discuss how the ICS framework can help, contact us today.