Every industry has products or services that are commodities. From food and beverage items to household products and daily services, commodities are everywhere and make bottom-line profits harder and harder to attain due to the fact that consumers tend to view commoditized products or services with an attitude of ambivalence.
This is because, in the customers’ minds, the product or service fulfills the same need regardless of what business or organization delivers it, so paying extra for said product or service is frivolous and unnecessary if a different company offers it for much less money than yours.
Whether the item is water, the service is an oil change, or the product is streaming TV shows and movies, customers instinctually believe more and more every year that every company or their direct competitor offers an interchangeable experience.
The solution to this obstacle is to continuously de-commoditize your products and services in order to remain unique in whatever industry your organization is part of. But how does a company succeed at doing so?
De-Commoditizing Adds Value
Take the concept of manufacturing and selling a can opener. From the start, your average customer buying one from a store will blindly select a can opener, assuming they’re all the same. However, what if your can opener is engineered to clamp shut on the can without you having to squeeze to slice through the top of the can? This allows you to increase the price. From there, your engineering team can add more unique aspects to the function of your can opener, such as a more comfortable grip or a better gear system to make using the can opener much easier.
The process of de-commoditizing your products or services adds intrinsic value to something ordinarily stuck in a paradigm of saturated markets. Another, more world-renowned example that dates back to decades ago is the constant de-commoditization of water.
Water is literally Earth’s commodity; however, once you bottle water, now you can charge for it. If you then take that water and put it in a fancier bottle with an attractive logo, and add a hint of fruit flavoring or vitamins to it, the price increase is now justifiable. A commodity has been de-commoditized with very simple changes.
Every product and service can be de-commoditized repeatedly, yet the unfortunate reality is most businesses either avoid or choose not to do this. Instead, they come up with a new product or service and they milk it, letting the product or service become a commodity and saturating the market further.
As I have said many times, resting on your laurels is the antithesis of my Anticipatory Organization® Model, which allows you to foresee disruption and change and transform it into opportunity and advantage. De-commoditizing your products and services is an integral part of this model, and here’s why.
The minute you come up with a new, potentially disruptive product or service, a competitor will undoubtedly copy it. When they do, your de-commoditized and innovative product or service slowly becomes a commodity, and as the margins get thinner over time, eventually you will potentially be disrupted by your own innovation! Most companies find themselves competing on the price they coined and eventually choose to remove the product or service from their line.
An Anticipatory Solution Using Trends
A more effective approach to this process is to think creatively about your product or service before the margins get thin while you ride the wave to shore. This allows you to be more efficient and effective with not only your innovation of new products and services, but your reinvention of old products and services. You can repackage it, redefine it, revamp it, or somehow make it unique in the marketplace again.
Paying attention to both the Hard Trends shaping your industry and the Soft Trends that you can influence to your advantage allows you to forecast where your industry or customers will be in the years to come, along with what they will want. This can then be leveraged to de-commoditize products or services before they come full circle and disrupt you by thinning the margins beyond salvation.
Based on the direction of change that you can see, what future trends can you identify?
For example, shampoo is arguably a commodity in our modern society, and one that has had seemingly endless brands and formulas attempting to de-commoditize it. More recently, chemicals such as sulfates and parabens commonly used in shampoo and even some conditioners have been pinpointed in causing damage to hair follicles.
This coupled with consumers’ passion and interest in healthy, natural options and their physical well-being led Johnson & Johnson to be the first of many companies to remove all harmful chemicals once never considered, though leading up to today, that industry is yet again ripe for a de-commoditization.
So, what about your industry, products, or services can be de-commoditized to increase the profit margin?
Ask Yourself: Using Hard Trends and Soft Trends, what are some customer needs you can see coming that a de-commoditized product will fulfill before someone else will?
Originally published here.
Read more: Insight, Co-Creation, De-commoditization