Can This Free You from the Commodity Trap?

Uncategorized

Print Friendly, PDF & Email

When the buyer sees no difference between you and your competitors except price, you have fallen into the commodity trap.

It’s easier to end up trapped than you might think.

The road to the commodity trap surprisingly often starts with the hubris of success. Your company or business unit may have been built around a great product idea that was enthusiastically embraced by the market. That product may have provided healthy returns and growth for years. Competitors likely emerged along the way, but you have stayed a step ahead of them by:

  • Playing specification leapfrog
  • Implementing new product features
  • Lowering manufacturing costs

Despite your relentless pursuit of superior product capability, your value differential could be shrinking in the eyes of your customer. If it is, then you are on your way to the commodity trap.

The Source of the Commodity Trap

When you first married your product to a customer problem, you may have had the market to yourself. But when competitors saw you making a mint solving that problem, they jumped in for their piece of the action. The fight for advantage began.

Eventually you and your competitors will solve the customer problem to a degree that the customer no longer requires more product capability. That’s the moment that you enter the commodity trap.

The root cause of the commodity trap is a product-oriented pursuit of competitive advantage where the customer problem is treated as static. Overtime the value differential between competitors solving this problem shrinks. It shrinks to the point where no differential is seen by the customer other than price.

 

Focus on product leads to commodity trap

Value-Based Strategy Can Set You Free

In value-based strategy, this can be avoided. A value-based strategy is driven by the notion that the customer’s goals and problems are always evolving as legacy problems are solved.

This evolving definition of the customer’s problem is the innovation driver for value-based strategy practitioners. They put as much focus on discovering new, hard, and valuable problems to solve for their target customers as they do trying to create superior products.

Value-based strategy practitioners avoid the commodity trap by constantly redefining the problem that they are solving. Doing so reconstructs market boundaries and creates uncontested market space. These uncontested market spaces are born out of their outside-in perspective on their business.

 

Focus on customer value avoids commodity trap

To illustrate this consider these two questions:

  1. “What else can we do for our customer?”
  2. “What new capability can we add to our product?”

The first question starts with the perspective of the customer. This is outside-in. The second starts with the perspective of your product. This is inside-out. Only the first question has the potential to lead to a new uncontested market.

The Bad News

Before you get too excited, you should know that uncontested markets don’t go uncontested for very long. Competitors will learn of your success and enter with offerings of their own. The race to the commodity trap resumes and so will your never ending quest to identify new problems to solve for your customers.