There Is No Such Thing As a Commodity

There is no such thing as a commodity. Whenever I make this statement in a classroom, it’s usually good for an argument, and I expect to start one with this article.

First, a couple of definitions: A commodity is an offering that is only differentiated by its price, so that customers would be silly to pay a penny more for one offering over another. The word offering is also important, because no product exists by itself—it’s always part of an offering. Offering comprises every possible aspect of the buying and ownership experience that will affect your customer.

We’ll begin with your offering. For the price your customer pays, they get much more than the physical product itself. That’s why even products that are physically indistinguishable can command price premiums. When is the last time you bought bottled water? You can get it as much as you want from a tap for about three-tenths of a cent per gallon, or you can drive to a store and pay up to $4-5 per gallon. Is it worth it? Apparently people are willing to pay for the “difference”: global bottled water sales are expected to top $86 billion in 2011, about equal to the GDP of Bulgaria.

People are willing to pay the difference because sellers tout differences in purity, taste, packaging, and image—even when those differences are undetectable in blind taste tests. If they can do it with water, you should have no problem.

As a salesperson, you can’t control the performance or quality of your product, but you do have a tremendous measure of influence on your buyer’s actual and perceived experience. There are so many different aspects of the ownership experience that to a sales person with the right mindset, sufficient knowledge, and a little ingenuity, every offering can be differentiated.

When you look beyond the product to the offering, you start to see many possible points of differentiation: packaging, delivery reliability, financing, convenience, durability, consistency, contract terms, your company’s financial strength, customer service, order size, time to implement, training, and the list goes on. Your first step in moving beyond a commodity orientation is to brainstorm all the possible points of differentiation.

For productive brainstorming, it’s useful to consider the customer’s ownership life cycle. Their ownership experience includes getting the product, using it in their daily processes, and eventually replacing it.

Getting: This is the part that the procurement person is most concerned with. Of course their job is to get the lowest price possible, but they also care about other aspects. How convenient is it to get adequate information to make a decision? How long does it take to get the offering when ordered? How reliable are deliveries? Will they have to take in extra inventory to get the low price? How long is the price good for; will they be able to predict their costs? What additional processing or adjustments will be necessary to use the product? Will users need to be trained?

Using: The offering will presumably be used in one of their business processes or operations. It may be an ingredient or component of their end product, in which case the process is clearly defined. Or it may be something like a computer which is used in their general work environment; the process is not as clearly defined but it still can be described. All processes have common elements which may be affected by your differentiators:

• Steps
• Time
• Costs
• Risks
• People
• Output quantity
• Output quality

Replacing: Most offerings will eventually have to be replenished, replaced or improved. Is your offering more durable? How often will upgrades and improvements be available? How easy will they be to get? How much will they cost?

From this, it should be relatively easy to generate a long list of differentiators. Your next step is to figure out what each difference means to your particular customer at the time. It’s time to ask the two most important words in sales: SO WHAT?

Don’t stop at your first answer. Keep asking So What? Until you reach a meaningful—and potentially valuable—impact. Our supply reliability is higher. So what? You will be assured of getting what you need. So what? You can place smaller order sizes. So what? You will have greater flexibility to adjust to changes in demand. So what? You can increase revenues by adapting to the market. (Note: to keep it simple I’ve left out several answers for each “so what”.)

When one of my clients went through this exercise, they quickly realized that they knew very little about how their customers used their product, and why they were willing to pay a premium for it. They used this occasion to go back and start asking questions, and the answers they found helped them to refine their sales approach, and gave the sales force added confidence in their ability to beat the price objection.

Here’s the catch: to do this successfully, you must know a lot:

• You must know your product and your company’s service inside and out.
• You must know your competition’s offerings.
• You must know your customer’s value chain: how do you impact their processes, their end product to their customers, their costs.

In short, you have to think from the customer’s point of view. It took time and it wasn’t easy. But if it was, anyone could do it.

In subsequent articles in this series, we’ll consider the next two obvious questions: HOW MUCH? And WHO CARES?