Many of today’s companies are competing on price and have razor thin margins on their products. As a result, they’ve commoditized their product and have to rely on high volumes to make money.
Fortunately, even though it’s a tough world out there, you can decommoditize your commodities.
In fact, you can decommoditize every product and every service. Skeptical? Here’s an example.
A number of years ago I was working with Cadbury Schweppes. Some of their product lines are 7-Up and Dr. Pepper. They asked me, “How do you decommoditize a carbonated soft drink?
They went on to explain that all carbonated soft drink sales have been declining by about 2% a year, consistently, as we drink other things. Like Coke, Pepsi, and all the others, Cadbury Schweppes was not very happy because of those slowly declining sales and thin margins. So I said, “Let’s take one of your popular products, 7-Up, and decommoditize it.”
How do you do that? The answer is, you make all of the ingredients natural.
Cadbury Schweppes did that…and sales went up. Why? They were playing to a Hard Trend: With 78 million Baby Boomers getting older, they want to not just be old, but to be healthy and old. That health trend is a Hard Trend, especially with aging Baby Boomers.
The strategy worked great for Cadbury Schweppes. Now, years later, their sales continue to rise.
Of course there is another prediction that’s easy to make. When you decommoditize any product, your competition notices. Now you have fat margins and they don’t, so at some point they will copy what you do. The solution to that is what I call continuous decommoditization.
In the case of 7-Up, I suggested that when competitors start copying their natural ingredients strategy, they decommoditize again. How? By making all of those natural ingredients organic.
But instead of doing what most companies do and make it organic at the lowest level—just enough to legally call it organic—you raise the bar and make it 100% organic, defining organic in the best way possible, the way you would want for yourself and your family. That way you capture the market, regain your margins, and set a new standard in the industry. In addition, you will become a positive national news story, and everyone knows the best advertising is to be in the news (and even better, it’s free).
Now let’s try the same thing with a service, like electricity. In the United States, electric companies have to ask their customers for permission to raise their prices. Of course, most customers say no. So power companies are often stuck with low margins as demand increases.
How do you decommoditize electricity? You create a different type of electricity. One electric utility did just that. They called it digital electricity. Of course, the physics of electricity are the same. But they told their customers, “If you have a large company with a lot of computers, servers, and electronics, you don’t want any fluctuation in current and you want the power to never turn off. We can guarantee that. We call it digital electricity.”
Who signed up? Google, Microsoft, and IBM were among the first, but then insurance companies, banks, and many others wanted it as well. Individuals will be the next market to sign up. Why? In an increasing number of homes, people are using a lot more technology and many high-end customers will soon want digital electricity too.
Before they did this, the utility had only one option and it was like all the others. Now they can offer both regular electricity as well as their new high-margin, digital electricity. How did they do it? They took what they have been selling for years—electricity—and wrapped a service around it.
You can continuously decommoditize anything! If you have a product, wrap a service wrapper around it. If you have a service, wrap another service wrapper around it. Ask yourself, “What product or service do we have where we’re competing on price? What are the strategies we can implement to decommoditize that product and/or service?”
Remember, once you do it, your competitors will copy you, so you have continually decommoditize. That’s one of the surest paths to higher margins and higher profits.