Sunday, June 25, 2006
Today, with the exception of some notable disruptions (such as the IPOD), we face commoditization of markets and with it the erosion of brand loyalty. Among the most influential factors contributing to commoditization are: the age of sameness; purchaser influence; and the practice of relying on core company competencies as opposed to emerging customer needs.
The Inexorable Pull Of Commoditization
As we’ve stated many times before, we live in an “age of sameness.” Our products basically satisfy the same physical needs as all other products within the categories in which we compete. Our people are the same. We recruit them from the same schools or companies. We indoctrinate them to think like everyone else in the company. And, like bees they move from one company to another to pollinate the same thinking. New, advanced technologies or reasonable facsimiles are available to virtually all competitors at either the same time or within a reasonably close timeframe. We employ the same distribution channels. Purchase raw materials and services from the same suppliers. Chase after the same customers. Use the same research. Make the same claims to the same customers. And deliver them with the same marketing mix elements. It’s no wonder there is so few market disruptions and little real differentiation in our categories.
Purchasers whether they are health care providers or practitioners, consumers, retail or organizational purchasers (e.g., business, institution, government, etc.) exert their influence to drive commoditization. It doesn’t matter whether the purchaser is Humana, Wal-Mart, the Veteran’s Administration or Mr./Ms. Consumer. They’re behaving in their best interest. The only rational way to differentiate among commodities is price, which favors the buyer, not the seller. Purchasers discount claims of differentiation to force discount pricing. Your company likely has someone(s) in this specific role. Driving the pricing of suppliers down justifies their existence and makes purchasing decisions easier, much easier. They don’t want to make subjective judgment on qualitative issues. In markets of abundance, where brand and product offerings proliferate, making one’s decision making easier is not of trifling importance.
Relying on core company competencies is not in of itself a bad thing. But when companies subvert the needs of the customer to make and do things the way that is convenient for them (in that it does not require additional effort) then they contribute to driving commoditization. It puts the company’s interests before the customers. It goes beyond discounting customer needs to erecting (subconsciously or consciously) barriers to internal ideas. We hear things like “we can’t do it on our production lines,” or “we have no way to measure that,” or “legal/regulatory won’t approve it.” This causes many marketers to retreat to do things the same self-directed organizational versus other-directed customer way.
These forces are always in play in the competitive world of business. They exert an inexorable pull to commoditize markets, which represents a sort of homeostasis in business, unless we marketers do something about it!
BOATS & HELICOPTERS:
Here are some suggestions you might want to consider to break-out of the pack and fight commoditization of your market offering:
- Out-Serve Your Competitors in Serving Your Customers - Borrowing from the immortal words of the late U.S. president John F. Kennedy, “think not what your customer can do for your brand, think what your brand can do for your customer.” Discover what you can do to satisfy your customers’ needs or, better yet, delight them. Before you can do this, however, you will really need to know your customer and what makes her/him tick. This starts with insightful segmentation and is followed by strategically appropriate targeting. Get beyond the marketing research statistics to get out and dialogue with customers in person. Don’t go forward until you understand how your customer will respond to alternate stimuli and only share those that will get them to want to choose your brand.
Next you will need to cultivate the attitude that the customer comes first. Remember that’s rule number 1. Rule number 2, is to go back to rule number 1. But, don’t just think it. Do it. In other words marshal the resources of your organization (i.e., product development, manufacturing, purchasing, etc.) to better serve your target customer than the competition with innovations that set your brand apart. Erase the attitude and behavior that suggests you feel put-out by your customers. Instead, you need to go out of your way to put-out for your customers. (For those of you not familiar with this American colloquialism, to “feel put-out” means that you are needlessly inconvenienced or burdened by customers. In the second instance, as we’ve used it, to “put-out” for someone is to give them more of yourself, hopefully, because your feel it is your duty and/or they deserve it.) And, don’t execute anything without first answering the following question in the affirmative: Will this please my customer in a meaningful and competitively differentiated way leading them to desire my brand?
- Think Of The Possibilities – Don’t contribute to commoditizing your offering by thinking of, and treating, it as another product in the category. Instead, think of the possibilities. Imagine what your brand can become for customers. One of the best ways to do this is to embrace the Perceptual Competitive Framework - a label that captures your vision of how you want your brand to be perceived beyond the “cats and dogs” of the categories from which you draw your sales. IPOD is not just another portable music player it is a “digital jukebox.” The Apple marketers have created a whole new category. They reframe their categories to create segments of distinction by embracing the Perceptual Competitive Framework. Their computers are not just computers but “movie studios.” Their printer programs are not just printing but “desktop publishing.” It’s more than just words. It’s a look into the future and the possibilities it promises. Moreover, their actions are designed to help them achieve these possibilities to create meaningful differentiation that is highly desired. In this way, Apple doesn’t merely create customers but nurtures loyalists, even evangelists. Dare to dream! Then come back to reality by following rule number 1.
- Employ Design As A Strategic Weapon – All of you marketers have progressed well beyond the first rung of Maslow’s “Hierarchy of Needs” ladder. So have the vast majority of our customers. We’ve gone beyond pure functionality. For example we no longer find ourselves in a struggle to find something to fill our bellies in order to survive. Today, we have risen to use food to satisfy our appetites for the novel, for the fine, for the experience. We have gone beyond eating, to wanting to feel indulged. There’s plenty of behavioral evidence to support this attitude. In the U.S. we have a cable television network devoted to cooking (foodnetwork.com). The most popular restaurants such as Charlie Trotter’s in Chicago (one of the world’s finest restaurants where they devote themselves to advancing the culinary arts) have reservation lists that stretch months in order to enjoy a menu “degustation” that costs more than $100 for each diner (not including the wine or your beverage of choice). Chefs such as Emeril Lagasse, Mario Batali and Bobby Flay have become celebrities and, even, brands (see The Reach of A Chef by Michael Ruhlman). It’s clear that the market desires more than commodities.
Customers want more than the basics. They want to have things that bring beauty and delight into their lives. That’s where design can play a significant role. And, we’re not just talking about elite customers either. Consider Target, the “mass merchandiser” retail outlet. They have been successful by introduced lines of products that have been developed by leading designers. We’re not talking about high price exotic stuff either. We’re talking, instead, about highly affordable everyday necessities. Their positioning is “design for all.” They offer lines of fashion and beauty products such as an Isaac Mizrahi peony skirt for only $24.99; home products such as black measuring spoons from the celebrated architect Michael Graves for only $5.99. Target has adopted design as a strategic weapon to go beyond the mere functional to bring joy to their customers by using world renown designers to create “everyday works of art.” And, they do it in a way that meaningfully differentiates their merchandise, and brand, from competitors such as Sears.
- Don’t Rest On Your Laurels – Advantage is a snapshot in time. It is fleeting. Competitors rush in to neutralize any advantage by copying and/or attempting to go one better. IPOD was an original. But look around an Apple store and you will find “i”-this and “i”-that (e.g. iPhoto, iLife, iMusic, etc.). Shop outside of an Apple store and you are still likely to encounter “i”-merchandise. Marketers are quick to adopt what has worked for them and/or some other marketer
In order to standout over the long-term we need think beyond the current successful initiative and be able to see the next “this” and the one’s to follow. Similar to the world- class athlete we cannot be content with a winning performance today. We must think about what will be required to win in the future and prepare for that future. Importantly, we need to be able to deliver before the competition.
The natural order of markets is to commoditize goods and services. Fight commoditization to create brand loyalty.
Richard Czerniawski & Mike Maloney
© 2003 Brand Development Network (BDN) International. All rights reserved.