Your company sells unique and differentiated products—or at least that's what you think. However, your competitors have been trying to match you or maybe offering similar products at a lower price. You also think your consumers/customers are loyal and won't switch if given an opportunity. Yet, they are much smarter—and are rationalizing purchases more—than ever before.
Marketplace competitors—either direct or substitutes—can easily make your products or services a commodity so that everything comes down to price.
How do you know whether you're being commoditized? And how can you avoid that undesirable fate?
Let's examine what defines various states of product commoditization.
1. Your product is offered by many
Examples include food and nonfood items, restaurants, law, financial services, even personal services such as fitness and hair-cutting. Meaningful differentiation is essential to deflect lower prices. What do you do?
- Be the No. 1 or No. 2 share leader. Being so gives you critical mass, since it implies customer satisfaction and allows you to build entry barriers due to your size.
- Have third parties talk good things about you—either in social media, product ratings or customer awards. However, don't just rely on Facebook pages. Not everyone looks at Facebook all the time.
- Don't focus just on price. Remind customers/consumers of your product's relevant features/benefits.
- Be the marketplace expert and offer free advice/counsel. Doing so might not result in an instant sale, but people remember those who've helped them in the past.
- Be easy to do business with. Customer service/convenience can make or break a sale. Time, too, has value to your users.
2. Your product is offered by some
You have a somewhat unique product. Also, your product category has substantial barriers to entry limiting competitive entrants. Examples include utilities, cars, travel, telecommunications, capital equipment, etc. What now?
- Offer aftermarket service. Buying a car, computer, or telecom services is more than a one-time transaction relationship, offering you a continuing opportunity to build future purchases or upgrades.
- Offer a full-line product/service. Depth can offer consumers/customers a "one-stop" shopping experience, "locking out" competition. Wal-Mart is always looking for "one-stop" suppliers/vendors.
- Product availability is important. Nothing frustrates people more than being ready to buy but finding out what they want is unavailable or that they have to wait a long time for it. Be sure the logistics side of the business is in sync with the sales/marketing side.
- Be sure your pricing is still competitive. Even though competition is limited, you can easily price yourself out of the market. Know what your competitors' prices are, and respond appropriately.