If so, how do you get out of it?

There’s a feature of many of today’s youth that you will have noticed.  They like to be seen to be different.  So they wear their caps backwards.

It’s not practical of course; it doesn’t shade their face, or keep the sun out of their eyes.  And it doesn’t make them different from their mates, because they do exactly the same. 

So many small businesses follow the same approach, they like to believe they are different from their competition, but they don’t want to be seen to be too different.  Whether it’s with their products, presentation, their promotion, and especially their pricing they instinctively seek to conform to the norm.  They become a commodity, with all its inherent problems.

Has the term “commodity ever been used to describe what it is you sell?  Do your customers say “I can buy the same widget down the street, or online, for less?”  Or how about your sales team, do they believe the only way they “can sell this stuff” is if you get them a product at a cheaper price?

If so, you’ve found yourself in commoditisation hell, and that ensures one helluva profit leak.

As E Myth puts itIf your market’s perception of what you sell – your service or product – is no different from others in your trading area, you sell a commodity. And if that’s the perception, (so pervasive that even you accept it) you’re in a dangerous trap because the only way you can compete is on price. And that’s a recipe for disaster.”

If a lower price is your only weapon, then you're a commodity not a brand.  And there'll always be someone willing to race you to the bottom.  But when you're a brand you don't have to have the lowest price.  In fact, you can often charge a premium for your product or service. And customers will beat a path to your door to pay it.

So how do you get out of, or even better, avoid getting into commoditised hell?

You need to create a position where continually lower prices are not your only weapon to win against the competition. 

Dan Kennedy put it well: “Price is the #1 way you can spearhead dramatic improvements in PROFIT in your business.  Price is the path to stored value, hidden and overlooked opportunities, and even personal liberty for business owners”.

You have to create the position where you can charge such a price.   Promotion, in all its forms, is one tool to use to create such a position, but it has a downside.  You can tell people you are different, but if your offering is no different from the widget for sale down the street at half the price, they will soon wake up to you.

Advertising will only fool people some of the time if your product or service doesn’t have better value.  Marketing hype is no way to fight commoditisation.

The difference must be real.  As the old saying goes: "good, fast, cheap - choose any two".  Offer the customer a choice.  Those caught in commodity hell offer only one – cheaper.  Being “good”, or rather “better”, and “faster” in delivery will enable you to charge the kind of price Dan Kennedy talks about.

Where do you start?  You need to determine what “good/better” and “faster” means for your clients.  Anticipate your customers’ needs better. Solve the problems they are not yet aware of. Offer something the market wants that the competition is not offering. Then pricing is not the only factor a customer uses to make the buying decision.

Better usually means better value.  Determining which offering provides better value is the process a prospect goes through, usually subconsciously.  They assess the benefits your widget brings to them, minus cost the cost of acquiring it.  You need to know the benefits your prospect values most, provide that, and then add further value.

So how do you deliver faster?  You could put everyone on skates; the sight would be interesting (as would the site) but I suspect that wouldn’t work. 

There’s no need to make people work faster, or harder.  Rather, improve the processes by which you meet your customer’s requirements, and reduce the cycle time.  Improving business processes is best undertaken as an incremental activity, a series of small steps.  If you want to solve all the problems in your business in one giant step that WILL take a lot of time, time that you don’t have.  There are no silver bullets in improving businesses.

Improving your processes will not just enable you to deliver faster, it will improve your customer’s experience, and reduce your cost of operation.  Improving processes can mean:

  • Reducing the number of steps in a process – one client reduced the number of steps in a process from 15 to 8.  Think of the savings that achieved, and how much faster they could deliver.  It also meant more savings and their people freed up to do other things.
  • Eliminating areas of error and rework, reducing waste; more productive use of time and materials.
  • Doing jobs with a completely different process – this is where investment in your IT and communications become important.

But you must take action.  Taking action is the real difference between those in commoditisation hell, and those in a much better place.

Is your business in Commoditisation Hell?

When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, it is not just marketing that is holding them back.  It is the lack of control they have over their business, and eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business.

The problems lie in the dark recesses of the business, unseen and un-resolved.  Illumination is provided by knowledge of what is happening in the business, and how to respond.

One space left –I have only one space left for a business assessment this month. 

If you would like to avail yourself of this, and there is no cost – this is my gift to you, book a Strategy Consult here.

© Copyright 2016 Adam Gordon, The Profits Leak Detective 

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