Insights | By Howard Tiersky

What To Do If Your Business Is Considered a Commodity

Is your product or service viewed as a commodity in the marketplace? If so, that can cause problems from a pricing and competitive perspective. 

If you are a commodity business but don’t want to be one, there are eight techniques you can use to stand out from the competition even in a commodity market.

First, let’s define what we mean by a “commodity” and look at some of the advantages and disadvantages of this type of business.

WHAT IS A COMMODITY? 

There are two defining factors of commodities — they can be purchased from many places, and they are not differentiated. 

Some examples of commodities include corn, bleach, coffee beans, gasoline, and gold. Any substance that’s the same regardless of which manufacturer or brand you buy it from. 

In today’s world, there are two ways to be commoditized. 

The first is if you manufacture a product that is a commodity, like gasoline. It’s difficult to sell your fuel for more than anyone else because you can only charge what the market is willing to pay. 

The second is to be a retailer that sells products that are widely available in the marketplace. An example is a smartphone retailer. The same item can be purchased from Best Buy, Verizon, Sprint, and others. 

Being a commodity is not always bad. Let’s look at some of the advantages and disadvantages. 

ADVANTAGES

LOW COST MARKETING AND SALES 

One advantage of being considered a commodity, is that if there’s a market for your product or service, you will likely have a low cost for marketing and sales.

POTENTIAL HIGHER PROFITS 

Additionally, if the price of your commodity product shoots up in the marketplace, your profit margin may be higher without you needing to make any changes to your product offering or sales strategy.

DISADVANTAGE

DIFFERENTIATION ON PRICE

THE primary disadvantage of being a commodity is that you must differentiate primarily on price. People generally aren’t willing to pay more for your corn than someone else's, because it’s the same product no matter who they purchase it from. 

And when you are fighting for customers and the only way to differentiate is on price, the tendency is to eat into your profit margin in order to compete, making it difficult to run a healthy business.

8 WAYS TO DIFFERENTIATE YOURSELF IN THE MARKETPLACE

So, if your product is considered a commodity, and you don’t want to be one, what can you do? 

There are eight primary techniques to transform a commodity into a differentiated offering. You don’t need to use all eight to be successful but it can be most effective to combine several of these together.

RELATIONSHIP 

One way to differentiate yourself is by building relationships with customers. By doing this, people may purchase your product simply because they enjoy the interaction with your company. 

For example, if you’re a plumber, and you’ve built relationships with customers and they’ve been using your services for years, they may keep hiring you because of the relationship. 

Pretty much all plumbers can offer the same services, but the ones that have successfully differentiated themselves, are more likely to win business over their competitors.

FEATURES

Another way to differentiate your commodity product is with features. Perhaps you can add a new component to your product that competitors don’t have. 

For example, a lot of brands make cameras. Sony, Panasonic, Fujifilm, Nikon and Canon all have similar models. These brands have added unique features to their cameras to differentiate themselves such as better low light performance, flip up screens or a more powerful flash.

BRAND 

Companies that sell commodities will often seek to differentiate from the competition by establishing a unique brand personality and visual identity.

A great example of a company that uses this strategy is Clorox. Bleach is a true commodity because it’s a chemical compound. All bleach on the market is exactly the same, but customers recognize the Clorox brand, and that makes them reach for Clorox products as opposed to others.

QUALITY/PURITY 

Another way to differentiate a commodity is by positioning your product or service as higher quality or more pure than your competitors. 

Let's look at a bookkeeping service as an example. Pretty much all bookkeeping services can offer the same things, but maybe your bookkeeping service is overseen by an expert with twenty-five years of professional experience. 

In the customer's eyes, that may be a reason to hire you, instead of someone else.

CUSTOMER SERVICE 

Customers may be able to purchase your product or service from multiple places, but maybe you provide superior customer service? 

Let’s look at Apple as an example. There are many places where consumers can purchase an iPhone. But, it may be perceived that the Apple store gives a better customer experience than Best Buy or Verizon. 

Apple positions their store employees as being more knowledgeable about the product, and can help customers pick the right phone for them. Also, they offer the added benefit of the Genius Bar service, in case you have a problem with your iPhone and need to come back to have it looked at.

EASE OF ACCESS 

As a commodity, you can differentiate based on how easily you make your products available to customers. 

An example of a company that does this well is 7/11 convenience stores. In some cities it feels like they have a store on every corner, and in those places, you are usually closer to a 7/11 than a grocery store. 

There isn’t anything at 7/11 that you can’t buy elsewhere, but it’s convenient to go there and pick up what you need quickly. Customers are willing to pay a slightly higher price for a gallon of milk at 7/11 because it’s easy to access.

BUNDLING 

Another option is to differentiate by bundling a commodity product with other things. The bundle can include non-commodity items, or it can be a unique bundle of commodities that only you are selling together.

The goal is to package the product or service in a way that makes the customer feel like they are getting a better deal by purchasing the bundle.  

Let’s use a travel agency as an example. Travel agents sell airline tickets, which can be purchased from dozens of places for roughly the same price. 

A travel agent may choose to bundle together airfare, a resort stay, meals, tickets to a show, and guided tours all together. Although these items can be purchased individually elsewhere, no one else is offering that exact same bundle.

PRICE STRUCTURES & GUARANTEES 

Offering different pricing structures for a product or service is another way to differentiate a commodity. 

An example of a company using a different pricing structure to differentiate is Amazon Prime. All e-commerce retailers offer shipping services, but it’s often added on to the customer’s purchase at checkout. Amazon uses a different pricing structure for their prime members. They pay a flat annual fee, and then are given free two day shipping with every purchase. 

Guarantees are similar. You can differentiate a commodity by offering an added benefit to purchasing that item from you instead of a competitor. 

A warranty is a great example of a guarantee. If you are selling the same Lenovo laptop that consumers can buy from a number of retailers, you may choose to double the manufacturer's warranty to differentiate yourself. When customers purchase from you, they get that additional benefit. 

Remember that being a commodity does have its advantages. But, if you’re interested in differentiating your product or service, you can use these eight methods to hopefully win more customers, and encourage them to choose your brand over competitors.

In my Wall Street Journal bestselling book, Winning Digital Customers: The Antidote to Irrelevance, I provide many additional techniques to help you differentiate products in a digital age. This information can be applied to business across all industries. You can download the first chapter for free here or you can purchase the hardcover book here.

Get FREE access to the first chapter of FROM`s
Wall Street Journal Best Selling Book

WINNING DIGITAL CUSTOMERS


  • Learn the three patterns of all successful digital brands (including companies like Apple, Netflix and Uber).
  • Understand why many great new products fail, and the formula for building products that won’t.
  • Discover the key reasons companies resist change and how to overcome them.
Get FREE access to the first chapter of FROM's
Wall Street Journal Best Selling Book

WINNING DIGITAL CUSTOMERS


  • Learn the three patterns of all successful digital brands (including companies like Apple, Netflix and Uber).
  • Understand why many great new products fail, and the formula for building products that won’t.
  • Discover the key reasons companies resist change and how to overcome them.