How To Turn Your Product Into A Commodity

Commodity ItemsBy the way, you really don’t want to do this!

The exact definition of the term commodity is specifically used to describe a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market. The market treats commodities as equivalent, or nearly so, with no regard to who produced them.

The quickest and easiest way to get the market to treat your product like a commodity is to make price an important part of the discussion.

This was highlighted for me in a BBC report about the UK Financial Conduct Authority’s criticism of insurance price comparison websites.

The key issue is that comparison sites tend to focus too much on price, without telling consumers about other policy details. As a result, the sites are failing consumers’ expectations by not giving them the right information to help them make decisions.

Why is anyone surprised by this? I’m sure that, given a choice, most people wouldn’t actually buy insurance. They are forced to do so by their mortgage provider for their homes and by law for their cars. As a result, they will look for the lowest price they can get.

As a result, the insurance companies will tailor their policies to offer the most competitive price. That’s just good business practice. Of course, it all falls apart when the consumer actually needs to make a claim and finds out that they don’t have adequate cover because their main buying criterion was price, not what cover was offered.

What’s the relevance to the B2B products and services you offer?

Here are some quotes taken from the home pages of Contract Electronics Manufacturing (CEM) companies:

“…we can deliver outstanding price performance…without any compromise to product quality or delivery performance.”

“…we offer truly first class value added capabilities & services at competitive prices.”

“ABC can now offer its full range of capabilities at an optimal cost point to meet most CEM requirements.”

“XYZ is focused on the provision of fast, cost effective solutions from prototypes through to production builds.”

In each case, the companies in question are drawing attention to price before they even start talking about the value of what they can offer. Who can blame their customers for focusing on price as an important differentiator?

Of course, price will be discussed at some point during your negotiations. However, by the time you get to that point, you should have already established the value of your offering in the mind of the customer (not what you think is valuable.)

To use a car analogy, there is no point trying to sell a Rolls Royce to a customer who wants to pay Mini Cooper prices.

Don’t think it won’t happen to you

I used to sell measurement equipment into the steel industry. When one particular product was launched, it used to sell for upwards of £300,000. Within 15 years, you would struggle to get £80,000 for the latest version of the same system. This was almost entirely due to  competitive pressures driving down the prices and turning the product into a commodity. Each of the suppliers was culpable for allowing this to happen.

The steel industry treated the various systems as equivalent, or nearly so, with no regard to who produced them. Everybody lost out in the end. It’s a bleak place to be; don’t let it happen to you.

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