A product essentially becomes a commodity when customers perceive little or no value difference between brands or versions. Price becomes the only differentiation.
Like death and taxes, commoditisation is a given. So what’s a business to do? The answer is to de-commoditise…but not just once, continuously!
“Constant reinvention is the central necessity at GE…We’re all just a moment away from commodity hell.”– Jeffrey Immelt, Chairman and CEO, GE.
The fact is that every product and service can be de-commoditised repeatedly. Unfortunately, most businesses don’t do this. Instead, they come up with a new product or service and they milk it. They make their money on it and let the product or service become a commodity.
The minute you come up with something new, a competitor will copy it. When they do, your de-commoditised and innovative product or service slowly becomes a commodity. The margins get thinner as time goes on. You find yourself competing more on price and eventually remove the product or service from your portfolio.
So, instead of letting the margins get thinner you can get more efficient. You can think creatively about your product or service so you can repackage it, redefine it, revamp it, or somehow make it unique in the marketplace again.
Here are some interesting examples as food for thought. It should provide you with some inspiration as to how you might ensure your product or service doesn’t become a commodity.
1. Ubiquitous FMCG products
For example, Coca-Cola was a commodity for many years. Coca-Cola and the other products like it are basically bubbly, brown flavoured sugar water. In recent years, people have started drinking less fizzy drinks, and more water and other non-carbonated drinks giving Coca-Cola’s P&L a thrashing, no doubt.
Recognising the trend for consumers to want hedonistic utopia through healthier drink options with the same great taste, Coke de-commoditised their product by taking out a lot of the sugars in Coke and replaced them with stevia plant extract, a natural sweetener, giving birth to Coke Life, which has 45% less sugar and fewer calories than regular colas.
But, as is the nature of commoditisation, over time competitors will start copying what Coke have done, and the product will become a commodity again. So instead of backing down again to decreasing sales and low margins, Coke could further de-commoditise by perhaps incorporating the following features to truly live up to their healthier more virtuous ‘Life’ product positioning:
- 100% all natural and organic ingredients
- Use a natural production process
- Introduce biodegradable packaging
- Include natural energy-giving ingredients
No matter how mundane your product or service is, chances are people have different needs around it today than they did a few years ago. As the world, economy, and culture changes, so do people. Their reasons for buying something yesterday may be different from their reasons today.
So it goes without saying that it is imperative to always be looking at what your consumers’ current and near-future needs are and then find ways to de-commoditise your product accordingly.
For example, when budget airlines first came to market about 20 years ago, the proposition was literally rock bottom prices for no-frills air travel. Unfortunately, this strategy very quickly led to a commoditised market place, leaving brands like Easyjet forced to de-commoditise in order to retain profits.
You can pay for extra legroom seats, opt for ‘speedy boarding’, order a meal on-board, pay for additional hold luggage etc.
Effectively, they diversified their offer to meet consumers needs of still being able to travel comfortably, but at a cost that doesn’t break the bank.
Their competitors soon became “copy cats”, and Easyjet then again decommoditised. This time, they stretched their brand beyond “air travel” to “holidays”, and they now offer Easyjet branded car hire, hotels, airport lounge passes, airport transfers, holiday insurance etc.
So look at your product or service and identify a new need people have. Then put a service wrapper around the item so you can charge more for it.
3. Cliché commodity goods
Look at every product and service you have and ask,
“Why is this item a commodity?”
“What can we do to make it different?”
For example, look at the features and functions of your products, how things are packaged, how convenient the product or service is, what the consumer or customer experience is like, how something is processed or made, etc.
Taking the clichéd commodity example of bottled water, could you change the bottle, filter the water more, or add flavours or vitamins to it? Many brands have used this thinking to great success.
You’d be forgiven for thinking that tissues are tissues, but chances are the ones you buy and pay more money for are softer, or they have aloe, or they have anti-virus ingredients, or they come in a designer box. The possibilities for changes exist for everything.
4. Retail experiences
For example, Starbucks moved meeting for a cup of coffee from local diners or McDonalds to a relaxing coffee shop. Then they took good old-fashioned coffee and transformed it into tasty coffee drinks that even non-coffee drinkers would love. Between flavouring hot coffee and blending iced coffee, they made drinking coffee an experience rather than a commodity you buy at the supermarket.
The key to really understanding and embracing this concept is to realise that every product and service can be de-commoditised.
Yes, it takes some creativity, thinking, and trend watching. But the biggest thing it takes is for you to get rid of your assumption that something can’t be de-commoditised. Most of us have learned to live with commodity items.
The future, if you’re serious about innovating a brand that functions beyond the dynamics of commodities, lies in finding the value proposition that others haven’t seen: “What do our consumers really want that they don’t feel is available from us or from any of our competitors? Why would they pay more to have it? How much more would they pay? And how often?”