[Editor's Note:In
a recent conversation, the leader of a company explained that his was a
commoditized business - just like many others in his industry. I asked
him why anyone would choose to buy from him unless he offered the
absolute lowest price. He looked a bit bewildered by my comment and then
responded that fighting price competition was his company's biggest
issue. It made me think of an article about differentiation. I hope you
find it useful. -dpm]
All products become commodities. All industries become mature.
You
wake up one morning and realize that your products have become
commodities. Your competitors all have basically the same "stuff" to
sell and your sales people are constantly pressured to lower prices.
Margins are being squeezed. You can't believe the price that a
competitor just quoted to lure one of your customers. You know all of
the competitors - they are not in any better position than you. This
just isn't fun anymore!
Welcome
to life in a maturing industry where growth is slowing - or may even be
declining, all of the competitors and customers are known, and
customers change suppliers or products for a lower price. Maturity comes
to all industries - materials, products, or services. Whether you
provide concrete or steel, or develop and sell software, your industry
matures and your product sooner or later becomes a commodity. In today's
environment, the path to market maturity is much faster than ever
before.
Good News. Your customers know the answer.
There
is some good news. There is big money to be made in mature markets.
Some companies in mature industries command premium prices, have low
customer attrition, make excellent margins, and continue to grow. But,
it requires some different thinking about your customers, products, and
markets.
Don't look for the answer inside your company. Creating services and solutions around products is not the answer if you are not pointed in the right direction. Get to know your best customers better (that is, your most profitable customers on a net profit basis). Ask them about their business, their problems, their
pain. Survey and interview customers. Go to their facilities. Meet with
their top managers. Listen and Observe. What are they really buying?
Where do they need help?
When is a product more than a product.
Years
ago, one of our clients was selling sophisticated diagnostic scopes to
physicians, but technological advances slowed and it was difficult to
expand the market. Pricing became very competitive. It was difficult to
convince physicians to make a big capital purchase. The company
interviewed dozens and dozens of physicians and office managers and
discovered an interesting issue. Since the scope had to be sterilized
between patients and the sterilization procedure for scopes is lengthy,
physicians and their staffs continually had a problem having a
sterilized scope available. The company decided not to sell scopes to
physicians, but to offer a fee-based service - providing clean,
sterilized scopes to physicians. They wrapped a product with a service
and solved the real problem for physicians. Margins soared. Pricing was
no longer an issue...they were selling more than a scope.
Do things your customer doesn't do well or want to do.
A client in the industrial
distribution business found that some of its customers were having
difficulties hiring and retaining qualified welders,
and there were safety concerns with their customers' painting and
welding production environments. The client offered to begin to deliver
"finished" components (cut to size, fabricated, welded, and painted)
right to the final assembly line. Revenue and profits increased.
What is even more significant is that the customer now has an
indispensable relationship with the supplier.
Change the way your product is packaged, managed, delivered, or used.
Another
manufacturing/distribution client found that their customers were poor
planners. Routinely the customer would show up at their warehouse in the
morning to pick-up product and materials for the day's job. By the time
they arrived at the job site, it was after 10:00 am. The client offered
two services to help: An early morning pick-up - any order that arrives
by voice mail, fax, or email by 11:00 pm is staged and ready for
pick-up by 6:00 am. They also offer a project management service. The
distributor manages the delivery of materials according to a job project
schedule which the distributor continuously monitors for the
construction customer. This ensures that the right materials are
delivered to the right site at the right time. The distributor cannot
command a significant premium for these services, but doing business in
this manner actually saves them money and builds customer loyalty.
Can technology change things up?
Another
company produced capital equipment which provided a static diagnostic
testing for their customers in the power industry, The problem - it
required that the customer's equipment be turned off during the
diagnostic test. The company came up with a means to add sensors to
their customer's equipment and to provide a continuous monitoring
service for a monthly fee. Margins and market size both increased
dramatically. Customers were ecstatic about not losing productive time
on their equipment
Your Customers may hold the key to differentiating your commodity product or service
- Determine what the CUSTOMER is buying? Survey and interview the customers - Listen to their pain and their needs in their business
- Change the way your product is packaged, managed, delivered, or used
- See how technology might change the economics or competitive environment
- Perform some of the processes and/or functions now performed by your customers
- Make the product more than a product
What are your thoughts about these key points? Share your reactions.
__________________________
We help clients think differently.
If you would like to discuss how we might help you and your company
accelerate the process of adding value and moving your company to the
next level of performance, please contact us.
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