
The Commodity
Slide
All
products and services, from the day they hit the market, slide predictably
to commodity status, from high price/high profit to low price/low profit.
This happens as a function of their product passing naturally through
the four stages of its life cycle.
There
are different selling methodologies that also tend to follow the commodity
slide through its natural stages. Ironically, many salespeople don’t
adjust and adapt their selling strategies to the four stages. They continue
to sell a commodity as if it were still unique and distinguishable.
The commodity slide also holds a great lesson for your sales proposals
and information. The longer your proposal and solution sit out there,
with time, the faster it loses its value and its ability to withhold
price pressures. The passing of time eventually marginalizes all products
and in relation to your proposals and information: time kills
all deals. However, many salespeople operate under an entirely different
reality. They believe the longer their deals hang out there, the longer
they have to endear themselves to their prospect and outlast and outflank
their competition with their dogged determination.
The
following are descriptions of the four stages of the commodity slide
in how it relates to your selling strategy and how you position your
product and service:
Stage 1
An
interesting example of the commodity slide that typifies the four stages
is FedEx. Fred Smith, its founder, was an MBA student at Harvard Business
School and did a paper on a transportation scheme he had for the logistic
market based on a hub and spoke business model. His professor, deeming
the paper interesting but impractical, gave it a C. Fred Smith, in the
classic rebellious nature of an entrepreneur, dropped out of school
and borrowed some money from friends and family to execute his innovative
idea. In the early days, the joke around the company was there were
more planes than packages on some days. However, as luck may have it,
one day Fred was golfing with some buddies and one of their guests was
from a staffing company. After hearing Fred bemoan the costly challenges
of having to fully staff his operation for peak packaging activity,
the owner of the staffing company knew he could save Fred millions of
dollars by cutting his payroll and staffing his operation with flexible
part-time workers who could be called upon on short notice to handle
the peaks and valleys of FedEx’s volume. At this stage, did Fred Smith
quibble with price? Absolutely not. He was delighted to be saving millions.
In Stage 1, the predominate selling methodology is customer fulfillment.
Any salesman with a shoeshine and a smile can sell at this stage. Salespeople
are simply glorified order takers. Motivated buyers who have not had
the luxury of time and resources to shop for your proposal characterize
sales proposals at this stage. Stage 1 is also typified by high demand
and low supply, allowing sales to be easy and profitable. The question
for the customer at Stage 1 is not even “which one
should I buy?“, since there is no competition. Rather, the concern
is, “how fast I can get it?“
Costs are high. Sellers are in control and have all the power.
Stage 2
As
Fred Smith’s company matured, he brought on professional managers
to run his different departments. One of his first hires was in the
area of human resources. The new head, who had had previous relationships
with other staffing firms, opened up the competition for their staffing
requirements. Since the incumbent realized the selling situation was
heating up as the onslaught of competitors started knocking on FedEx’s
door, the incumbent realized that they would have to start differentiating
their offering by adding value or different features and benefits to
maintain their competitive advantage. They also had to sharpen their
pencil on price in Stage 2 since the buyer has more options. The focus
moved from “how do I get it?“ to “which product offers
the most value?”. Unlike Stage 1, where the customer is solely
focused on their problem, Stage 2 represents a subtle, but important
shift to additional and enhanced choices that are available to them.
The focus was now more on the product and less on the problem. This
is where salespeople became value sellers or feature and benefit sellers
to differentiate themselves and to underscore their value. Your sales
proposals in Stage 2 have the vulnerability to be shopped for the first
time. Therefore, timing of information becomes more important.
Stage 3
Stage
3 is personified by supply equaling or exceeding demand. There is an
overabundance of "me too" products that are barely distinguishable
from one another. The product is now a true commodity. However, most
salespeople are conditioned to think otherwise and continue to sell
distinguishing characteristics that no longer are unique. Price is now
the driving factor and customers now no longer ask, “How do I get
one?” (Stage 1), or “Which is the best?” (Stage 2),
they now ask “How can I get it for the cheapest price?” (Stage
3). Now the original problem the prospect had is so far removed from
their awareness that it is more difficult for salespeople to be problem
solvers. Prospects can now hoodwink salespeople into believing they
are no different than the competition. Prospects can now cover up and
gloss over the original problem that initially compelled them to seek
a solution. At this stage your information and unique proposals are
all but neutralized. Proposals sit out there longer since the prospect
isn’t as focused on their original problem and proposals lose their
potency and value. Once again, time kills all deals. The longer they
sit out there, the greater the likelihood they will go south. Ten to
fifteen years ago, as a lot of products were entering Stage 2, companies
staged a comeback to combat their commoditization. They came up with
the idea of customer service as a truly distinguishable and bankable
differentiator. But time eroded that selling fad because everyone jumped
on the same bandwagon and eventually started to look and sound like
everyone else. Salespeople started to sing from the value-added hymnbooks
and they got some decent traction out of it but eventually it started
to sing hollow.
Stage 4
To
combat these new economic realities, a small select group of companies
have entered a stage, for lack of a better name, called Stage 4. They
now distinguish themselves solely on how they sell and engage their
prospect. They know this is a limited window of opportunity to get a
leg up on the competition by repositioning themselves as problem solvers
and change agents. This is truly the last bastion of differentiation
available to them. They know that the salesperson who does the best
job of identifying, isolating and understanding their prospect’s problems
will consistently outsell competitors who have price advantages and
superior solutions. People still buy from people they like, but what
is so important in this last stage is, people buy from people they believe
have the patience, expertise, and industry knowledge to understand their
unique problems and uncover business problems they never knew about.
Companies
have adjusted their operations, their manufacturing and their cost structures
quite well over the years to combat the inevitable slide their products
and services experience. However, the one area that they have not adjusted
to is how they reposition their offering to make up for the commoditization
and marginalization of how they personally sell their products and services.
Most sales organizations have salespeople who are experts at a game
that is no longer being played. They continue to rely on antiquated
and obsolete sales methodologies that no longer work in this ultra-competitive
new information economy.