No matter what industry you’re in, chances are you have a few products or services in your line that are commodities. From food and beverage items to household products to daily services, commodities are everywhere and make bottom line profits harder and harder to attain.
Companies that sell commodities typically must offer low prices and deal with slim margins. Why? Because the customers’ perception of the product or service is one of ambivalence. In the customers’ mind, the product or service is just like everyone else’s, so there’s no reason to pay more for it. Whether the item is water, car brakes, utility service, copy paper, or one of the millions of other commoditized offerings, customers believe what they get from one company is identical to what they can get at another.
So what’s a business to do? The answer is to de-commoditize…but not just once…continuously!
For example, suppose you sell flashlights. To customers, a flashlight is a flashlight and you can only charge so much for one. But what if you made your flashlight last twice as long? Now you can charge more for it. However, don’t stop there. Later you can add more unique aspects to your flashlight, such as making it half the size or twice as bright. Now you can continue charging more for your flashlight.
Here’s another example: Water is water…until you put it in a bottle. Once you put water in a bottle, you can charge for it. You can then put the water in a fancier bottle and charge some more. You can also add some vitamins to it, give it a fancy name, and charge even more. Now you’ve taken a commodity and you’ve de-commoditized it.
The fact is that every product and service can be de-commoditized repeatedly. Unfortunately, most businesses don’t do this. Instead, they come up with a new product or service and they milk it. They make their money on it and let the product or service become a commodity.
Realize that the minute you come up with something new, a competitor will copy it. As they do so, your de-commoditized and innovative product or service slowly becomes a commodity. The margins get thinner as time goes on. You find yourself competing more on price and eventually remove the product or service from your line.
Here’s a better approach: Instead of letting the margins get thinner and riding them down, you can get more efficient and effective. You can think creatively about your product or service so you can repackage it, redefine it, revamp it, or somehow make it unique in the marketplace again.