Is Your Online Presence Like A Commodity That’s Putting Your Business at Risk?

Author : , Date : September 15, 2014

businessLower 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:

 

  • Pharmaceuticals
  • Airlines
  • Insurance
  • Home Builders
  • Mobile Phones
  • Restaurants
  • 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.

Why?

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…

Right?

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?

 

commodity-training

 

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?

Wrong!

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.

Click here and learn how you can avoid becoming a commodity!

 

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!

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Don Purdum

Don Purdum

Don works with businesses to help them discover who their customers are and what business they are "really" in. He is an award-winning blogger and branding / marketing consultant.
Don Purdum
  • Don…you are absolutely correct! It took me FOUR years to stop offering a commodity and to learn how to provide value to my marketplace by providing something different. Failing for four, whole years was a tough, tough pill to swallow, as I look back on my professional experience, but it’s the very reason why I know so well that this article is on target.

    I did this very thing!

    So many entrepreneurs do!

    I think, sometimes, that the biggest challenge for us as business owners is to start seeing ourselves as we really are – to stop being afraid of success AND failure and to simply do the work. Mindset is probably the biggest hurdle to overcome…at least it was for me. Once I got my MIND right, the money and value followed.

    Know what I mean? 🙂

    Once more, you ave created a great piece of content for us, and I appreciate it. I know that when I come here, I am going to consume something that will make me a better person and business owner. Keep up the great work, friend!

  • Hi Christi,

    The majority of us that start businesses have not had mentors or training and we’re just not prepared to build a business.

    So, that leaves us with learning on the job the hard way. My guess is that the four years you spent struggling ended up being a HUGE blessing for you????

    You’re right that the hardest thing to do is see us as we are… what’s even harder is to see ourselves as our consumers see us. When you can bridge the gap between who you really are and who your consumers see you as; and then add who you want to be known for it can transform a business into the potential it can be.

    Thank you so much for your kind words Christi. It’s a joy to see your comment!!!!

    Have a great start to your week Christi!

    ~ Don

  • Judy Yaron

    If I understand you correctly, Don, basically, what you are saying is that in order for a small business to survive in a commodity driven market, it needs to find its unique niche. A business’ uniqueness can be its product or service, its target audience, its location or delivery time, its price and/or its customer service. A business’ uniqueness is what makes it stand out from the crowd and encourages people not only to buy once, but to keep coming back and tell their friend. Cool, I’m examining my business accordingly and yes, there is hope.

    Thanks 🙂
    HUGS <3

  • Hi Judy,

    Yes and no. Yes you need to find your unique niche, but you also have to learn to communicate yourself completely different in order for that niche to identify with you and be given a reason to buy from you and not a market prices but at elevated prices that will bring you true profits.

    In essence, what I’m suggesting is that we have to stop being commodity driven companies fighting over price, sales, clearances, lowest bids, etc; and the way to do that in order not to compete on price can be the items you mentioned but it is has to much more comprehensive than that; meaning you have to do the hard work I outlined above so that you don’t sound like everyone else.

    When you do these things you are much more in tune with your business, your tightly defined audiences and how you deliver or execute your products or services.

    I hope that makes sense? It is a fine line but it’s the line that separates the mediocre from the highly successful.

    Thanks so much for commenting Judy and for engaging with me! If you’re not clear please let me know.

    ~ Don

  • Really enjoyed this article Don. One of my most valuable lessons in this area came from working from a small hotel in Maui. We were surrounded by 5* resorts with every perk under the sun and prices to match. Our hotel was 35 years old and in dire need of renovation at the time I joined them. The logical thing to do would have been to focus on price and just go for the low end visitor business – but we didn’t do that. We focused on creating a very specific visitor experience and when I say that I don’t mean a marketing tagline or advertising base UPS. Every employee took classes in the Hawaiian culture; it’s where I learned to dance hula and speak Hawaiian. We said we were the most Hawaiian hotel and that was true through and through. So that funky little hotel charged high end prices and ran the highest occupancies on the Island. In fact one morning I walked through the lobby and spotted the general manager of the Embassy Suites at LAX lounging in a chair in shorts and t-shirt reading the newspaper. There was a luxury Embassy Suites just up the road from us but he chose to stay at our hotel instead. I stopped in front of him and he looked up with a sheepish grin on his face and said shhhhh!

  • OMG!!!! I love that story Marquita!! That so gets to my point as a story.

    You know you nailed it when the competition is coming to you to use your product or service, right?

    “Shhhhh!” I can’t stop chuckling at that. That’s AWESOME!

    Have a great evening Marquita!

    ~ Don

  • Judy Yaron

    Absolutely, Don. Once you identify your uniqueness, or Blue Ocean, this is the message you need to convey across the board: in how you conduct yourself, in your language and culture, and in your price. Not all businesses are premium businesses and there is nothing wrong with that. BUT, if you see yourself as a boutique business, it’s not enough to demand boutique prices, you need to delivery top quality boutique products and services as well – AND not be intimidated by the masses you don’t get what you’re all about. While the general manager of the Embassy Suites in LAX got what Marquita’s funky little hotel was all about and was willing to pay for the experience, there are many, who would see the price to be outrageous.

    I am a Pedagogical Artist, an expert in my field, offering quality service.
    (Pedagogy = The Art of Teaching/Learning).I have identified my uniqueness in terms of the service I provide. I realize and say so upfront that I am not for everyone. What I am doing pretty much follows your approach: I use language to distinguish myself from others – to stand out from the crowd. As I wrote in one of my recent blogs, there are those who resent my use of the term Pedagogy, because to them I sound like a professional snob. I call my clients GUESTS because that is how I perceive and treat them. I am not ashamed to set high prices, because I know not only my worth, but what I deliver.

    Thanks, Don, for the clarification. Happy to continue to dialogue.
    HUGS <3

  • I love it Judy!!!! By identifying your uniqueness you’ve disqualified those that don’t make a good client for you. I don’t think that makes you sound like a snob at all, in fact it the word is so unique it makes me want to learn more.

    It’s so exciting to learn a little more about you and see how you actually are doing it!!!! You my new friend are in the top 1% club. You know, the top 1% who not only get it, but are doing it!

    Thank you so much for sharing!!

  • Hi Don,

    Well, a winner again. Great info here and one can’t read this without starting to think what can I do to make sure that I’m not just a commodity, but bring real and excellent value?

    I think that’s Tony Robbins who says, being good is not good enough, you have to be great, top notch, excellent!

    There is no doubt that money is in the value, and if we don’t make enough money it means that we are not bringing enough value. I’m one that doesn’t believe in competition and it kind of annoys me when people use that term, because I believe that we are all unique and can bring value above competition.

    Today I had a document that needed to be notarized and I went to a bank where I didn’t have an account and they refused to sign my paper. I went to another bank where I don’t have an account either and they did sign the dang paper. Now I’m thinking of opening another account soon in another bank nearby, guess which one I’m thinking about? You would think they would be smarter wouldn’t you? A bank? How stupid can they be?

    Anyways, great stuff, Don!

  • Hi Don,

    There are many companies selling their product online and offline but the main point is-do they have their value of selling like others?
    Having a commodity in not the big stuff. But having the value for their product is what other are seeking.

    Hard work always have it’s importance because no one can get positive results without hard work. People should get motivation to build their brand with value so that people come to them for buying their product not just another alternative for their old product.

    You will face many other people working hard but if you have potential then no one is there to stop you.

    I enjoyed this article a lot.

    Thanks for sharing.:)

    ~Ravi

  • Hi Sylviane,

    I think Tony Robbins got it partially right. The reason I say that, and I think he would agree, is because we are a work in progress. Being the best, top notch, and excellent is relative. We ought to always be striving to be those things. In so doing, we arrive to be better than those around us with the capabilities to be more than we already are.

    I tend to really agree with you in regards to competition. You’re actually talking about the difference between a negative and positive mindset.

    Competition is a negative mindset. It’s really in my opinion an insecurity, worry, and fear about people not liking us or spending their money with us.

    If we focused instead on being the best and offering the value I wrote of we will always be attracting those who identify with us and need us. We won’t be worried about those who compete with us because we realize not everyone is going to buy from us. So why not create valuable partnerships where can refer those who are not a good fit for us instead of hoarding clients that in the end will become a headache or problem?

    Excellent points Sylviane. I always appreciate your insights and ideas. Keep ’em coming, okay?

    ~ Don

  • Hi Ravi,

    A trick I learned a long time ago is it’s not always how hard you work, but also how smart you work. I am a big proponent for thinking about how do you lay a foundation with the right strategies, goals and objectives that can help you be smart with your time and resources.

    Work hard, ABSOLUTELY! Work smart, you bet!

    I appreciate your perspective and point and you are absolutely right, I just wanted to add the one little addendum…

    I hope you’re having a great week!

    ~ Don

  • Don- I agree with you to a point. In my business it is price driven. I can’t tell you how many people come to us and ask us to match or do better than a competitor. You also have to ask yourself is it better to have something than to have nothing at all. People expect great service, good workmanship, but they want it for a good price. The problem today is lack of loyalty

  • Hi Don,

    This is the 1st time I visited your website and Wow how much I have learned here… I believe it is all about creating the Reputation… There are so many criteria for making Good reputation which can help you even at the time of bad phase… You take the example of HP…. They have lost so much during 2010-2012 because of few bad investment but still able to recover from that just because of the reputation they have created…

    What say you?

    Regards…

  • Hi Don
    I guess you do know this is one of my favorite topics.

    If we put value in trash it becomes gold. This is the simple rule that works for every type of business.

    The biggest advantage of value is you can’t touch it. You can’t see it. You just examine it with past experiences, opinion polls, surveys, market reputation and that is all.

    Yes, you can just check the apparent value of a thing like how is its power, beauty, color, shape or design but you can never examine the value of its utility with a first look.

    That is why it is said there are two types of people in the world; career wise. First one is those who can create value and become entrepreneur and second one is those who help others to create value and they do jobs during their whole life.

    Very debate-igniting post that entirely refreshed all my views about online presence and online reputation.

    Thanks a lot for sharing.

  • Hey Don,

    I have no words to tell that how much I enjoyed this article. Everyday I learn new lessons from bloggers like you. I love to read this kind of topics. Waiting for more from your side. Publish more articles as soon as possible on these topics.

    Thanks
    Dr. Diana

  • Angela McCall

    Hi Don,

    I like that illustration you did between a GM car and a Mercedes Benz. I’m very visual. And so you caught my attention here very well. I have never really thought that way.

    But you are absolutely right. One is a commodity. The other is a piece of a very well product. Outstanding product that is beyond comparison! We all want to own a Mercedes Benz, even my husband will rather see me driving one instead of a cheap American car. He’s not impress at how fancy Mercedes is. He just know that if I get into an accident, I have a higher chance surviving in a Mercedes Benz rather than driving in a tin car. Because Mercedes is more sturdy and better built, he’s concern more about the safety issue.

    You know I’ve met someone at the Meetup group, and you’re the second one that said to me that it is your VALUE what makes you stand out. And my Designer friend (Rob Cubbon) who said to me, it is your COMMUNICATION with your client that makes the difference! And again you mentioned “communication” too. All of you said the same value.

    I like what you said here. I think I will tweet and share this on Facebook:

    “When you’re the best and you really help people and businesses you don’t have to chase money, the money will chase you!”

    Wow, it’s really late in my end but night time is the only chance I have to read because it is so quiet.

    Have a nice weekend.

    Angela

  • Hi Don,

    Very interesting article, and I love that you really made me put my thinking cap on! 🙂

    Your definition of commodity is excellent, and I agree wholeheartedly with what you said. I’ve been working to differentiate myself and not become a commodity business, although that’s not what I was labeling it. I’ve learned a lot by reading your article.

    I love what I do and knowing there is a base of folks that have connected with me and only want to deal with me (loyal followers) is a huge encouragement. I’m working on a forum membership that will go live shortly that is definitely a unique offering, and will not an undifferentiated commodity.

    Absolutley hard work is ahead, and in the past and in the present day… as individuals with different backgrounds, knowledge and skill sets, there is never one person alike, so that in an of itself differentiates a person who solves problems for others. The human element is strong and powerful.

    I have a different view of value. I don’t necessarily think it means being the best in your industry. Competency, absolutely – I agree is a necessary foundation, but character, personality and what makes people “jive” with someone and not another is a huge factor, in my opinion. Mode of communication is important and will be valuable to some, while not to others.

    I like your analogy of commodity and luxury (MB and GM). In your summary, I love number three! Amen, brother! My forte is teaching and training, and I am empowered by it. I love to live webinars and will be increasing these very soon.

    Excellent article, and I’ve already shared it before finishing my comment! 🙂

    Talk soon,
    – Carol

  • Hi Arleen,

    I completely understand and you’re right. I have worked with companies that are in very competitive fields and they are asked all the time if they will come down on their price.

    In the retail environment, doesn’t matter if it’s business to business or business to consumer, one has to work even harder at creating a business model that will give people a reason to spend money on higher priced items and create loyalty. I know how hard that is in a price driven society. But, it is possible.

    All of my clients are business-to-business so for that audience I was specifically writing for the context will be true.

    Thank you for bringing a different perspective! I really appreciate it!!!

    ~ Don

  • Hi Karmakar,

    Welcome!!! I think it depends on what the long-term quality of the reputation is. It’s really hard to compare a large corporation with assets and big budgets to a small business. The things that might hurt a company like HP will destroy 99% of the small businesses.

    I’m sorry I didn’t get back to you sooner. I was away speaking at a conference and playing catch-up is a bear, lol…

    I appreciate your understanding and hope you have an awesome upcoming weekend!

    ~ Don

  • Hi Mi,

    Well said Sir! I think you bring a very interesting perspective when you talk about the two types of people.

    May adapt it and say there are three types of people?

    1. The Entrepreneurial Leader – Very creative and loves to build things from nothing. They are highly visionary and dedicated to a higher calling.

    2. Managers – They have leadership tendencies but they need and entrepreneurial leader to give them vision, guidance and direction. Once they have it they are awesome at developing processes and systems.

    3. Workers – not everyone can be an entrepreneurial leader or manager. Someone has to do the work. These are the folks who help the entrepreneurial leader create value.

    Hope that makes sense?

    Sorry it took me longer than normal to come back to you. Getting back from traveling for speaking and business and trying to get back into the normal flow.

    I appreciate you Mi!

    ~ Don

  • Hi Dr. Hardy,

    WOW! Thank you for the extremely kind words. I hope I don’t let you down. If you liked this article then I think you’ll really like today’s article. I do try to publish 3 times per week.

    I was in Dallas late last week through the first of this week speaking so I’m playing catch-up. Please forgive me for being late to my own party.

    I hope to see you again very soon!

    ~ Don

  • Hi Angela,

    You just did something amazing here and I’m not sure if you did it on purpose or not?

    You exposed two different levels of value… one is based on financial value and the other is a practical value.

    When we spend a lot of money on something we value we take pride in it.

    However, when some has a value like “safety” there is no price tag.

    What an awesome and amazing perspective you shared here Angela. Thank you for making my blog better via your presence!!!!!!

    ~ Don

  • Hi Carol,

    Thank you for making my blog a better place! What an incredible comment!!!!

    I think you touched on something HUGE! “The human element.”

    At the core, isn’t that what I really talk about all of the time when I encourage people to not talk about themselves, their products, their servers… what they do?

    I ask them to focus on their prospects and customers. Right?

    That’ takes the commodity right out of it. Why? Because as you said they are going to buy you and there is not another you. At least I hope not, that might be weird. LOL…

    Thanks for bringing still yet another perspective for me!

    Sorry it took me a little time to get back to you after getting back from my speaking event in Dallas last weekend. Catch-up is no fun…

    Chat soon.

    ~ Don