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.