Avoiding Commoditization with Hi-Tech Solutions - Part III

Part III - What’s your company made of?

It is true most managers recognize the effect internal culture and innovative thinking have on the success a company experiences. However, it is also true many companies lack deliberately implemented strategies which connect the two. The development of an internal climate, in businesses like these, is left to chance — with an assortment of values, attitudes, and beliefs battling for supremacy. If we understand that culture plays a role in helping a company set itself apart from competitors offering similar products or services, wouldn’t it make sense to invest in its development and differentiation?

It is important to understand that innovation is more than just creativity. Hiring creative thinkers is certainly an important step in the process, but innovation requires the execution of creative ideas in profitable ways. Companies skilled at this distinguish themselves from competitors and avoid commoditization by providing customers with valuable and unique offerings. Carrying out creative ideas depends largely on the environment they are pipelined through.

World renowned innovator Google has taken steps to protect the culture they have developed. The circulation of employee happiness surveys, company-wide ski trips, and transferable stock options—which can be sold via online auction for immediate profit—are all unique benefits designed to boosts Google’s employee retention and maintain their established culture. But from a market standpoint, the net effect is a customer perception of Google that sets them far apart from their competitors.

It is also important to consider the role employees play in a company’s quest to avoid commoditization. Take Southwest Airlines for example, which provides employees with a weekly message recorded by CEO Gary Kelly, a monthly newsletter, employee spotlight awards, and a daily company news e-mail. According to Senior Vice President of Corporate Communications Ginger Hardage, the goal is to provide employees with enough knowledge and information to act like partial owners of the company and understand how their behavior contributes to customer perceptions of the company. In this case, the connection is clear. In highly competitive industries, where differentiation between competing products or services is small, employees are the “X-factor” with the ability to set your company apart.

Finally, remember the “fun factor” is important to many employees. Many successful companies have created opportunities for employees to interact and connect with each other. At Cxtec, a computer network hardware company, new hires push around a doughnut cart on the first Friday of each month in order to meet fellow employees in every department. Besides promoting an environment of improved communication and support, an approach like this also helps to strengthen a company’s internal culture by explicitly exposing new employees to the atmosphere and norms they will be part of.

The goal of any company looking to thrive in a competitive market is avoiding commoditization. Once the connection between internal culture and differentiation is made, a company can begin developing and managing the atmosphere which guides company practices on a daily basis.

Avoiding Commoditization with Hi-Tech Solutions - Part II

Part II – “Dare to be Un-Shopped”

The phone rings. “Carter and Company, this is Nick.”

“Hello,” the caller avoids pleasantries and gets right to business, “I’m trying to get quotes for…”

Calls that begin this way may invoke excitement for salesmen, but it’s a frightful indicator of a commoditized market. Last week, we looked at how customer perception is the primary factor that drives once-vibrant and profitable markets into the doldrums of price-warring competition. This week, we’ll focus on changing those perceptions and generating leads interested in your sharp mind more than your sharp pencil.

Innovation by differentiation

Distinguishing your product or service from those offered by the competition is primarily a function of marketing. Consider Starbucks, which charges considerably more for a cup of coffee than the rest of the industry. How is this elevated price accepted by the customer? Think package design, product styling, and customer experience. Starbucks hangs pendent lights over their bar and features local artists on their walls to create an environment favorable to positive customer experiences.

In high-tech markets where retail visits are rare, the sales approach itself can also be a marketing tool. For example, deliver “proposals” to potential clients instead of quotes. This allows for elaboration of the standard features of your solution sale.

Innovation by addition

The simplest method of offering a “solution” sale is to bundle services or auxiliary products with a commoditized product. Tech support and training, for example, are add-on services which are commonly offered. General Motors has effectively achieved innovation by adding On-Star to many of its vehicles.

Innovation by innovation

Finally, there is innovation by innovation alone. Companies like Apple redefine common products all the time. Their business approach results in products priced higher than comparable products and their sales are not affected. Similarly, you might recall when Autodesk realized their need for this type of innovation in the mid-90’s. Although AutoCAD had been their flagship for over 20 years, they expanded their product line through acquisition and spawned a new era of growth for the company.


Regardless of the strategy for avoiding commoditization, for manufacturers and suppliers, the desired result is the same. When a consumer perceives your product or service as beyond compare in its total offering, they won’t have the luxury of shopping it around. If you want to restore your profit margins to the levels they once had, you must dare to be un-shopped.

Avoiding Commoditization with Hi-Tech Solutions - Part I

Part I – “From Concept to Commodity”

If you are a manufacturer or a supplier, you have most likely experienced both the thrills of a new product introduction and the plague of petty, price-warring sales. In the short time after a new concept is introduced (provided that it is viable) there is a period of rapid growth and high margins. However, as the market matures and “early adoption” is long forgotten, commoditized prices ensue and you’re left wondering, “What next?”

In next week’s article, “Dare to be un-shopped,” I will address specific strategies for avoiding, or at least prolonging, this phenomenon. However, the first step in addressing the problem of commoditization is to understand the business factors that cause it.

When asked about their plight, suppliers in a commoditized market are quick to tell you it’s those nasty competitors they have, always dropping prices. This may be a true observation from one perspective, but the reality is that competitors don’t drive markets, consumers do. Where you see so-called “pant-dropping” prices, it is usually in response to shrinking market share that results from a flood of competition. However, where you see this flood of competition, you’ll find it is in response to unmet consumer demand.

According to capitalism, competition is good. It keeps prices equitable and motivates innovation. So what is the difference between equitable prices and commoditized prices? Simple… the absence of innovation. When the most innovative new concept that competition pushes us towards is to make our product less expensive, commoditization has begun.

So, how can it be said that consumers, not competition, are the driving force of commoditization? When consumers perceive that all products are the same, their only real factor for selecting one supplier over another becomes price. The key for every business is to not become concerned with the competition because in the end, you cannot prevent competitors from entering your market. Instead, businesses should focus on the consumer’s perspective. If to the consumer you have no competition, then price is the last thing on their mind.