Get Out of the Commodity Trap

By Dr. Reed Holden
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In the eyes of many business clients, all service firms look alike. These services are viewed by increasingly sophisticated buyers as a series of well-defined commodities that are available from a plethora of companies. Because many service vendors have not updated their offering to meet the evolving needs of their business customers or communicated their unique value to each client, business customers have focused primarily on price in their acquisition process.

To avoid this commodity trap, companies must become adept at diagnosing their customers’ business problems, developing targeted solutions, and communicating this value to the client in terms relevant to their business. Simply stated, the sales manager must become a trusted advisor to the customer, partnering with the customer to deliver greater and greater value to their business operations. Absent this relationship, customers will view low-cost as the only value delivered by their commodity provider and will be happy to let multiple vendors duke it out with low prices.

Research and years of working with clients tells us that the most productive answer is moving up the customer value chain with solutions based on effective value propositions. In our experience, most customers would like their vendors to offer additional services and solution packages, and are quite willing to pay for this added value. To accomplish this, services firms must:

    • Recognize that while some customers will pay for this added value, others will not and still others will attempt to “play poker” in the hopes of negotiating value at a lower price
    • Understand the needs of their specific customers, and then develop solutions and value propositions that address these needs
    • Pass the “acid test” of value by demonstrating value to customers in economic terms.

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