14. January 2011 00:16
What is commoditization?
I’ve been reading a lot about modern commoditization theory, and how it affects businesses everywhere. In commoditization theory, a business’s products or services are evaluated exclusively in terms of price, because a similar if not exact product or service is available elsewhere in the marketplace.
The role of the Internet in commoditization.
Over the past decade, the Internet has dramatically increased the commoditization of products and services across the board. Before the advent of the Internet it was difficult to communicate with multiple vendors outside a given local service area. Companies didn’t face much more than local competition, and consumers didn’t have as many options.
Multiple choice: Empowering consumers via direct access.
The Internet has changed the way consumers purchase goods and services, with direct, instant access to a global marketplace. Amazon.com is a great example of this – and I know because I’m a huge fan and customer. I love the freedom of shopping for anything I can dream of, knowing that I will always get a great price. While Amazon.com is a great tool for the consumer, I imagine it has slashed manufacturers’ profit margins, worldwide.
MCC and the struggle against commoditization.
At MCC Recycling, we work very hard to avoid the commoditization of our services. This seems a bit ironic, as we buy and sell commodities – scrap metals - every day. It would devastate our business if our services were to be commoditized. If our margins were to be slashed to dangerous levels then everything else would suffer in proportion. Our equipment would not be maintained; our facilities would degrade; and we would not be able to invest in our people, our intellectual property and our future company strategies. In turn, our competitors would do the same and ultimately the service to the customer would suffer and wither.
Avoiding commoditization with UP and UR.
When working with my sales team I’m known to instruct that “We need a UP or a UR or else we’re playing on price.” To be more specific, we must always work towards developing a Unique Process or a Unique Relationship. Otherwise we’re essentially bidding price on every job.
A UP or a UR - or both - can be extremely beneficial. A Unique Process (product, service or technique) is when a competitor cannot or is not willing to do what you are doing. It may be that we are specialists in our field, we own some great intellectual property, or that we are just so dynamic and playing ahead of the curve that our competitors can’t keep up with us. A Unique Relationship is also a valuable asset. UR is a situation where our service might not differ that much from the competition, but we have a close relationship with a decision maker because we create value for him/her. Personally, I love having a UR with a customer.
UR the company you keep.
An example of a great UR? My commercial insurance brokerage is fantastic. They provide excellent service, personal access to partners and they do what they say they are going to do. They’ve completely eliminated the annoyances normally associated with the insurance business. They add value by handling many extra tasks for me, which frees up my precious time. This relationship also stands out for me in stark contrast to the inadequate service I received from previous brokers.
In return for the outstanding service, I don’t shop insurance prices. I’m sure they are not the cheapest around. But I don’t mind, as they are earning a fair profit for outstanding performance. I feel they deserve their fees, and will stay in business for a long time, which only benefits me further.
While their process is not unique, they have gone miles out of their way to cultivate a unique relationship with me. If you are a customer or potential customer of MCC Recycling, I hope that both our process and our relationship are strong, unique and create value for you.
If not, please let me know.