A Manufacturer’s Antidote to Commoditization
Many manufacturers continually struggle with differentiating their products to avoid having them classified as commodities.
The most common, yet historically ineffective strategy to evade commoditization’s black hole is to simply offer enhanced and/or additional product features. Although a short-term solution, it is an arduous strategy to sustain for obvious reasons – competitors will quickly copy new features, say “me too,” perhaps cut prices, and maybe add on even more features, rendering the NextGen product irrelevant. Adding to this pain will be the inevitable lower-cost products or alternatives arriving from overseas to disrupt the entire market.
On one hand, this scenario creates an ideal buyer’s environment. Competition, coupled with a manufacturer’s strong desire to not have its products classified as commodities, drives innovation and quality while keeping prices competitive. But for some manufacturers, it’s a perpetuation of a vicious cycle few wish to endure, and only a handful can maintain.
The way out of commoditization is through delivering unique and unconventional brand experiences.
If we look to the successes of brands such as Apple, Tesla, and Under Armour, each tells a story of how they were able to swagger away from the world of commoditization by creating brand experiences people fell in love with. And although each of these brands may not be the largest in their respective categories in terms of sales and profitability, each figured out a path to successfully build a base of loyal customers more than willing to pay a premium for their products. For example, in the world of computers, iOS (Apple) may be outsold many times by Windows, but in the personal computing industry, when we think of a powerful brand, we think of Apple first – not Toshiba, HP, Dell, Lenovo or ASUS.
However, not all products are as seductive as computers, cars and shoes. If you’re manufacturing pharmaceuticals, industrial brushes, conveyors, etc. – products lacking glamour – you can still differentiate your brand away from commoditization through a combination of tactics, such as:
- Manipulating product availability
- Improving delivery times and terms
- Flexible shipment options
- Flexible payment terms
- Offering extended warranties/guarantees
- Offering ancillary services (i.e. after sales services)
- Fanatically quick service/responsiveness
Staying competitive in an industry characterized by near-identical products, overcapacity and price wars
In addition to the above tactics, you may wish to invest in a good CRM system that allows you to calculate customer profitability. Through this process, you’ll be able to measure customer profitability and decide if it’s time to release those who are least profitable back into the wild. Sure, letting customers go will reduce your market share, but in the long term it will boost profitability. Other strategies for consideration include:
- Compensating your salesforce on profit margin versus sales revenues. This will help facilitate a transition that focuses on your more profitable customers.
- Changing or customizing your pricing structure so that customers cannot easily compare your products on price alone, thereby forcing them to engage with your salespeople. After all, people don’t buy products, people buy from people.
Of course, the above tactics and strategies will require you to create and cultivate a culture of strong people who share your intense desire to fight and win, as the path to category or industry leadership will not be paved by mediocre, or “above average” people. If you don’t already have one, build a compelling employer brand in the spirit of attracting the talent you needed to carry out your missions and objectives. Inspire them and share your vision. Anything less will keep your brand in the commodity territory – a difficult and dangerous place to be.
Wisconsin’s only Certified Brand Strategist
Principal of Seroka
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