Doug DavidoffLet’s start off with some definitions (granted you may not find them in Webster’s or Black’s Law Dictionary, but they are my definitions and they seem to be working):
- Commodity – any offering that competes with perceived alternatives
- Commoditization – the process where customers systematically eliminate anything a company believes is special or different about itself and reduces the company to its lowest common denominator, typically, though not always, price.
Some key points.
- Our customers commoditize us, we do not commoditize ourselves (and our competitors do not commoditize us).
- Commoditization does not necessarily mean lower prices, though it almost always means compressed margins, or at least significant pressure on margins.
- Commoditization is the single, biggest threat against growth and profitability.
- Commoditization occurs when your customers and/or potential customers stop recognizing or adequately valuing your differences.
I often talk about the fact that virtually every company sells two things. They sell their commodity (whatever the ‘thing’ is that creates revenue) and they sell their wisdom (the ability to use their knowledge about how to apply the commodity in unique ways). The challenge is that most companies attempt to ‘differentiate’ themselves based on what they sell, which is almost always (in a customer’s mind) a commodity.
I believe that every company is, in fact, different. Each one is different because people are different, and a company is merely a group of people. They are different not because of their offering, but because of how they do whatever it is they do. It is in the ‘how’ that the difference and value is created. Help your customers and potential customers understand your ‘how’ and why it makes you different. Do that and you’ll find that the commodity you sell will become more profitable than ever.