Three Ways To Avoid The Commodity Trap

We celebrate the 100th issue of Promotional Consultant Today 2012 with a topic that’s always top-of-mind for promotional products professionals: how to avoid being viewed as a commodity. The drum beat of downward pricing pressure convinces salespeople, sales managers and even some chief executives that low price is the major, or even the only, decision driver of their buyers. Today’s Feature Friday includes this excerpt from the May issue of our sister publication, Promotional Consultant digital magazine.

Very few markets are dominated by the low-cost supplier. In fact, it is often noted (with surprise) that the dominant player in a given market is able to maintain its dominance even with higher prices. The classic example is Starbucks, which decommoditized the coffee marketplace. Starbucks replaced the 50-cent cup of joe with a $2 “low-end” product and successful offerings as high as $4.95.

Here are three ways you can avoid the commodity trap:

1. Decide. The most important leap you need to take if you want to de-commoditize your business is a willingness to say no to a portion of your marketplace. You can’t sell to everybody, and you can’t sell to the portion of the marketplace that views price as its most important decision driver. If the guiding principle of the company is “we will never lose on price,” the company is admitting that it has failed to establish differentiators that its customers will pay for, and in which it has confidence.

2. Segment. The Segment step is a matter of research and analytics. The Segment step is the very difficult, soul-wrenching process of deciding which segments you can serve most profitably, what segments you should say no to, and dedicating product development, partnering strategies, marketing resources, go-to-market strategies and sales resources to serving those segments better than anyone else.

3. Price. Choose a pricing strategy and stick with it. Your pricing strategy is largely a function of your marketplace’s maturity. A revolutionary product with an entirely new value proposition should command a premium price. This is in part simple recognition that most prospects won’t buy it; they need to be educated. The ones who will buy it are typically willing to pay premium prices, and the high price is itself a statement of the value being offered.

For three more important de-commoditization strategies, read “Six Tips to De-Commoditization” in the May issue of Promotional Consultant, available in your inbox.

Source: Per Sjofors is a speaker, author and the founder and CEO of Atenga, Inc., a leading pricing strategy authority. He has more than 20 years of executive management experience and has built a number of successful, and very profitable, sales and marketing companies in Europe and in the U.S.