Lower prices, it’s the sweet word that every consumer wants to hear and their wallets want to experience when buying online. Everyone loves a good deal when they are spending their money! And businesses love seeing money in their checking accounts as well. But what happens when competition is driving prices down and the amount of money entering the bank account isn’t enough or isn’t what you need or want it to be?
How can those two things go together? How can consumers saving money equal businesses making good money and being able to contribute back to society by offering good paying jobs and benefits?
They don’t as I’ll explain in this article. Regardless of whether your business is online or offline or a combination of both, you have to figure out if you’re trapped in a commodity market that’s based on price or if you bring real value that translates into healthy profits.
Part of the problem is business owners are competing in a commoditized environment without knowing what is happening to their business. The internet has caused a lot of the tensions and unfortunately, commodity markets usually only make money for those who are able to create the commodity. In simple terms the commodity creator is the monopolizer.
Think of Google as an example. They created an amazing search engine where 90% of all indexed search engine traffic goes through them over Bing and Yahoo! They commoditized search and the Internet. You want access to their audience in order to make money; you have to figure out how you’re going to pay for it. The more businesses that pay for that access at higher amounts, the more money Google makes and the harder it is for you to stand out on their platform to make your money.
Amazon is another great example. You can get almost anything you want from Amazon now at a price that is lower than what you can get almost anywhere else. However, it is showing in their declining profits but at this point they don’t care. They are building a monopoly that will sustain them over time versus the short-term. It’s really not hard to see their strategy.
If you’re going to make money online you are going to have to figure out how to get out of being a commodity based business that relies on a commodity based provider to help you make money.
My definition of a commodity is simple: If someone buys a product or service from one company and that same product or service can be bought from another without the consumer being able to tell the difference in result, experience or quality, it’s a commodity.
Commoditization occurs as a product, service, or industry loses differentiation in the eyes of the consumer. Some examples of both offline and online industries that have been commoditized online include:
- Home Builders
- Mobile Phones
- Social Media Experts and Trainers
- Online Marketers
- Web Designers
- Graphic Artists
- Search Engine ( check out our article titled “Transformational Changes in Online Engagement: Part 1 – Google” for more details about the commoditization of the Internet by Google)
Most small businesses are a commodity based businesses in the modern world. The problem with that is they have high competition, very, very low profit margins and they generally struggle year-after-year. According to the Small Business Administration early 90% will fail within five years and 70% of that 90% will have done so within 24 months.
In an article yesterday in the Wall Street Journal titled “Competition is for Losers” Peter Theil makes an argument that the majority of companies offer no real alternative value and even the ones that do are not necessarily valuable. Ouch!
The idea is that while we love competition, it hurts businesses and the economy when we are not able to differentiate ourselves from one another as businesses.
Because as new competition enters a market for any given business that sells the equivalent product or service, they generally compete on price to gain market share. Think about it, how many times has a company come in and said we are the best and the most expensive, come buy from us? It doesn’t happen, right? If you know of one that has, I would love to hear about it the comments section below.
As we compete on price the market determines the value of the product or services and prices are driven down.
If too many businesses enter the market, many will lose money, some will close, and then prices will rise back to sustainable levels.
While the article is a contrast between monopolies and competition, the point I gleaned from his article is that;
“If you want to create and capture lasting value, don’t build an undifferentiated commodity business.”
How to Stop Being a Commodity and Start Building Value
Do you own an undifferentiated commodity business?
For most of you reading this article, I bet you probably do. If you’re in web design and development, graphic design, social media, online marketing, or just want to increase your audience and leads from marketing online… then I will almost guarantee that you have an undifferentiated commodity business!
There is a way to change from being a commoditized business to one that is in high demand.
See, a commodity business is not in demand because the company sells the same product or service as others and appears to be the same. Have you ever been to a true flea market? If so, you know what I’m talking about. Everything to the untrained eye is the same. Guess what? You’re consumer is untrained and all we’ve done is train them to see the price.
So what makes you any different than your competition?
If you just created a business to compete and make some money then you are already falling into the trap. Many business owners start companies or buy franchises to try to take advantage of those who have created some kind of monopoly in their market because they see someone making money and believe they can as well.
How many businesses have started for this reason over the last two years and now that businesses are being created at high levels thanks to corporate layoffs how many more will be started with this in mind?
After all, if you’re halfway smart and a hard worker you can make some money.
Isn’t that what every business owner wants?
Now, depending on the industry you’ve chosen that may be harder to do than in others. After all, insurance is insurance; a candle is a candle; a car is a car; clothes are clothes; food is food…
However, there is a way to distinguish yourself so that you can break free of unnecessary competition and making less money both offline and online.
WARNING! Hard Work is Ahead
There, I warned you. If you’re going to break free of being a commodity and struggling because you compete on price and have to do excessive volume, you are going to have to do some hard work that you are not trained to do.
You have to learn a lot of things in a short time that will challenge you to look at your business differently.
You have to consider two main criteria:
What Business are You “Really” In?
That means you have to see your business very differently from the obvious and be able to communicate it.
The very heart of this question is asking “why” you are in business and why you do what you have chosen to do.
What Problems Do You “Really” Solve?
My clients get worked over really hard in this area. You know why? Because every single one of them, even when I explain what I’m looking for, will tell me what they do. I’m not interested in what they do and neither are their prospective consumers.
It’s not the answer I’m looking for. You have to have to think and be challenged to consider each individual person that would come in contact with you and identify personal, emotional issues that they are having and why they would need you.
This sounds easy doesn’t it? But it’s not. Some will work months and months just on these two questions alone.
But as each one begins to work through these two questions it become painfully obvious why they have been struggling in their business?
Commodities happen when we are unable to separate ourselves from our competition and we all look the same and people start buying on the lowest price.
People start buying on value when they understand what the value is they are buying and will do almost everything in their power they can to get it when they know you are the one who will “really” help them.
Why is it that some business coaches and consultants can demand $10,000 or $20,000 per month?
Because they are valuable!
Why is it that some web designers and developers can demand $100,000 or $1 million dollar projects?
Because they are valuable!
Why is it that some companies that are commodity based industries can thrive on volume?
Because they are valuable!
At one point Dell was extremely valuable. No one built computers like them and they were in demand. There were even Dell Certified Technician’s and call centeres. How much does the mainstream hear about Dell today?
What made them different? They were perceived to be valuable because of the certifications. But it had more to do with the high quality of the customer service. I didn’t have to deal with retailers and return policies and warranties. This one company took care of everything for me. That was valuable!
What Does It Mean To Be Valuable?
I never thought you would ask! Being valuable starts at being competent and for being known as the best, or one of the best, in your industry.
Competency is the base foundation of any business relationship. If you’re not found to be competent and can’t meet your customers need why should anyone spend money on you?
All being competent does is initially open the door. If you’re known to be competent that’s good, but it’s not good enough!
You have to be the best or be perceived as the best!
That means you have to know how to communicate better than your competition about how your product or service is going to help them solve their problem. Being competent opens the doors and being an awesome communicator closes the deal.
There is always someone more competent and better than you, but if they cannot communicate what business they are “really” in and how they solve a consumer or businesses “real” problems then does it matter?
The problem with so many businesses online is they all look and sound the same. Take the illustration below of the Facebook ad training. The only thing I see is “FREE.” But, how is that “free” going to help me?
You create value by how well you communicate, solve problems and by how well you execute and deliver.
Ah, you thought I was going to forget about execution and delivery didn’t you?
Execution and delivery is the key to a great consumer experience. If your product or service doesn’t deliver you will get tagged as being just like the rest of the mediocre companies out there that are chasing money and profits instead of problems and solutions.
Here is the good news, when you’re the best and you really help people and businesses you don’t have to chase money, the money will chase you!
True value is created when you solve problems by offering solutions that change someone’s life for the better or when you help create new opportunities of growth for businesses inside your niche.
Think about it for just a second; what’s the difference between a $35,000 GM made car and a $70,000 Mercedes Benz? Both are just cars that do the same thing in the end, right?
Here is the real truth; Not just anyone owns the Mercedes Benz but a lot of people own GM made cars. GM is a commodity and Mercedes Benz is a luxury that is a reward. One is sold on price and the other is sold on the accomplishment of fulfilled dreams.
The communicate something very different and very real. One is average while the other is among the best.
So to summarize;
To move from being a commodity price based business to a highly sought after company with healthy profits you must:
- Learn what business you’re “really” in
- Learn what problems you “really” solve
- Learn how to create and demonstrate “real” value
Entrepreneurs and business owners who struggle do so because they look just like everyone else. They are blue in a sea of blue fighting for the same small piece of pie that everyone else is fighting for. But it doesn’t have to be this way.
If you have a comment or question, please leave it below in the comments section as I would love to engage with you and learn from you as well!