Are you (and your team) just a commodity?

by | Nov 8, 2022

My businesses are based in regional Australia. Where I live, our agribusiness sector grows grain crops, citrus, grapes beef and a host of other produce. Our mining sector produces coal and sapphires, and we have gas projects underway. Solar energy plants produce electricity.

All these outputs are classified as commodities – “a basic good used in commerce that is interchangeable with other goods of the same type”. That is, “the market treats instances of the good as equivalent, or nearly so, with no regard to who produced them”.

So, if a commodity is interchangeable, it follows that price is the only thing that differentiates one load of wheat, say, from another load. A buyer will select the cheapest load of wheat.

Of course, real life isn’t quite that simple, but you get the idea.

But it’s not just wheat, coal and beef that are treated as commodities. Sometimes services are as well, and that’s where the problems start.

If your service (or product) is viewed as a commodity by potential buyers, both you and your team are being treated as commodities as well. Of course, people should not be thought of as simply commodities, but unfortunately that is how some buyers will see your business.

As a result, you will find yourself competing solely on price. Business becomes an inevitable race to the bottom. Your potential buyer assumes that your product or service is the same as the next supplier. The only difference is the price, so it doesn’t matter to them whether they pick you, or your competitor. The cheapest price gets the sale.

How to avoid being a commodity

The only way to escape being a commodity business is to find a way to differentiate your offering from everyone else’s. This is your ‘Value Proposition’. It describes why a buyer should buy from you – the benefit that the customer will get from having you as their supplier.

What is it that makes you different? Here are a few pointers to get you started:

  • Your team are all skilled and qualified.
  • Your equipment is special in some way.
  • You have a unique/different process.
  • Your product tastes/sounds/looks better.
  • You offer a guarantee.

There are a million possibilities once you put your mind to it.

Creating your Value Proposition

But working out how your company is different is only the first step. The fact that you are different is of no consequence to your buyer unless it helps them in some way.

You must incorporate this benefit into the Value Proposition. Here are some pointers:

  • Our product will save $x million per year in reduced staff turnover.
  • Contract management costs will decrease by x per cent once our system is used.
  • Our solution will save valuable time so senior staff can spend more time on high-value work.
  • Clients who use our product typically see a 25 per cent increase in revenue.

Know your client and your industry

The secret to crafting a good Value Proposition is knowing your service, your client, and your industry inside out. Without a deep understanding of what matters in your industry, and how you fit into it, you will most probably come up with a slogan, not a Value Proposition.

My own company, an environmental consultancy, has faced the commodity problem. It has taken us many years to work out what really differentiates us from our competitors, so don’t be disheartened if you can’t get this right immediately.

Do you have a powerful Value Proposition that shows your clients how valuable you really are to them? If not, start thinking!

This post first appeared on on November 8, 2022.