How Do You Escape the "Commodity Box"?

Do customers consider your products commodities?

Nearly two-thirds of companies report that their products or services have fallen into commodity traps, as customers assume that there’s little or no difference between vendors. This puts tremendous pressure on pricing – with both customers and suppliers – a third of manufacturers find themselves stuck in price-centric, buy-and-sell relationships with customers (an even higher percentage of SMEs are stuck).

Unfortunately, commodity-based, transactional relationships almost always lead to limited bargaining power and low margins. According to marketing expert Andrew Thomas of the University of Akron, current marketing and distribution notions have wrongly convinced thousands of U.S. innovators that the sale and distribution of their products and services is better left in the hands of outside forces.

But there’s good news: breaking out of the commodity trap can re-energize your organization — and your profits.

In doing this, focus on three commodity-trap escape routes:

Innovate: If competitors copy your products, make your own versions obsolete. Few products retain popularity forever (Twinkies excepted). Nothing drives new margins like new products.

Differentiate: Add value to existing products — via enhanced service and support, embedded intelligence, extended warranties, etc. — that distinguishes your offerings from those of competitors.

Collaborate: Work closely with customers to design for specialized, even company-specific needs. This usually creates short-term product development and production challenges, but can pay major benefits in the long-term. How? By transforming your company into an agile organization with increased customer focus, expanded R&D capabilities, and a broader product line.

What’s your commodity trap escape plan?

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