The Commodity Trap― Nothing Tender About It

Why do so many once-unique products or services become commodities?

Think smartphones, bottled water, flat screen televisions, even insurance, or 401(k) plans―because everyone begins to replicate an outstanding feature, what made the product or service unique in the first place.

Before you know it, the value proposition evaporates, and sales depend on best price. The commodity market.

Professor John Quelch of Harvard Business School observes that:

• The speed from product launch to maturity is faster than ever before.

• Innovate, bundle, and segment are three things marketers can do to delay commoditization.

• Managers already in a commoditized market must rethink salesforce compensation and pricing, trim costs, acquire competitors and fire unprofitable customers.

Okay, fair enough. But I want to posit an area of weakness that will propel products and services down the slippery slope to commodities.  How companies and their sales staffs sell.

When I ask sales people what competitive advantage they hold, or their point of difference, I hear “we’re unique,” “we’re the best,”  “we perform better than the competition.”  Okay. But what does your client or customer think?

Buyers view products and services as commodities more than you might think and, believe it or not, most of the commoditization is self-inflected. This self-commoditization has had a major impact on margins and profitability and continues to do so.  In my opinion, the culprit in the mirror stares back at us.  We cause this problem by the way sales people approach and process the “engagement” within the buying organization.

Three avoidable levers open the not-so-tender trap. But don’t worry. Coming up, easy ways to avoid commoditization.

The First Lever to Avoid

If you lead your meeting presentation with the product or service, you inch dangerously close to the edge of the commodity trap. Sales people, especially those in financial services, software, medical devices or engineering, have a tendency to approach prospects who already know a great deal about the product or service.

For example, picture a company that sells executive relocation services. Its salesperson will feel comfortable calling on the human resource department because those employees appreciate the challenges of relocation, generally know costs and differentiation of services, and will likely be responsible for a corporate move. So, the salesperson discusses her services, and perceived advantage, yet fails to discover the hot buttons behind a move decision. If she knew the internal issues, she could seamlessly match her product to the HR department’s solution.  Hint:  In most of these situations, you’re dealing with an entrenched incumbent.

Sad to say, but most salespeople are unskilled when it comes to guiding a prospect through a full evaluation process toward solutions that truly work for them. Most corporate sales processes used today assumes the prospect understands his own situation and the alternatives available.

You can’t assume that buyers all have the same vision for buying.

To succeed in complex sales, first recognize that every decision begins with an individual perception packed with preconceived ideas. Your job is to help your prospect to connect his vision to your solution. People buy for their own reasons, not ours. No one buys a product or service per se. What is bought is what the prospect thinks the product or service will do for them.

What matters is the prospect’s vision of what he or she wants to get done. As an entity, companies don’t have buying visions; individuals do.  Sales people must spend the time to understand what they are and how to connect them to your product or service.

In our Conceptual Selling® workshops, we teach sales people how to accomplish two interrelated selling tasks; first understand and then connect. Relate your product or service to the identified vision for the solution— just like you get fitted for a new suit of clothing.

The Second Lever to Avoid

This lever is somewhat related to the first. Sales people often do not understand nor do they invest time to understand who comprises the internal decision making ensemble, and what each would regard as a personal win. Salespeople tend to assume based on their most recent sale that they know this power group, and how it thinks collectively and individually.  In my work, I don’t find this to be true.

In one of my Strategic Selling® workshops, a participant offered this illustration. He was selling an insurance payroll deduction program to an employer with 5,000 employees. His key decision maker, the person who could approve the plan, was also the general counsel, who happened to be a client with his former employer.

The general counsel personally wanted the plan; he felt a gap existed in his insurance coverage and had some insurability concerns. His director of human resources, who reported to him, was behind the program, too. She felt it would help augment their employee benefit plans, and she personally saw the benefit as valuable.

Somewhere I hear a lever beginning to squeak?  E-e-e-e-k.

The head of payroll, someone our storyteller overlooked, had no interest in taking her time to make the changes required to the payroll system to allow payroll deductions. In fact, she was quite vocal saying, “Why can’t we postpone this until our new system goes into place next fall?”

By not realizing sooner that the head of payroll played a key role on the decision making team, our storyteller made a costly mistake. He thought she was a low-level person. In reality, she wielded influence and successfully pushed off the decision until the next fall.

The Third Lever to Avoid

Too many sales people show up and dump their product or service information all over the conference table to the bleary-eyed prospects. But wait, there’s more. These anxious Archie-types are still eager to pump out more information, run scenarios, do demos, play videos, and exercise all manner of sales props, to convince the audience of product fit.  Once you pull this lever, you’ve given away valuable leverage by not requiring the prospect to commit himself to the sales process.

I remember in my early days of selling, my team would prepare these great presentations. We locked in the meeting, engaged in warm chit chat with prospects, did the presentation and then went for the finale close by asking, “Based on what you heard today, what should our next step be?”

Ah-h-h.  Nothing like the assumptive close.

If working with an associate, we would look at each other and stay silent until the prospect answered. You remember the old trick . . .the first one to speak loses!  Sometimes it took two to three minutes and felt like thirty. The prospect would then say something like, “let me discuss this internally and get back to you.” Or, “can you send me some additional information on this or that?”  

Then for some reason this prospect would go cold. I could never understand why such a great meeting could just freeze over.

I finally realized that you should never leave a sales call without securing some type of specific promise from the prospect. In Conceptual Selling® we call it an Action Commitment. By committing to action, and only by committing to action, your prospect demonstrates agreement to create a win-win relationship.

This seems eminently logical once you spell it out, but it’s amazing how rarely it is put into practice. The commitment must be meaningful, but appropriate for where you are in the sales process. You must also have a minimum commitment to fall back on, if they don’t agree with what you are proposing.

An example. In a recent meeting, I ended by saying, “You mention that your CFO and human resource director would be involved in the decision making process. Can we arrange a meeting next Thursday or Friday to bring them into the decision?”

My prospect sat back and thought for a minute and shared that he wanted to be first to bring the others up to date, and then we could schedule the meeting.  So, I asked, “When would you be speaking with them?”  He replied, “Before the end of the week.”  Then I asked if we could schedule a conference call for Monday or Tuesday so he can bring me up to date on that discussion. If he refused to do that, I would seriously have to look at this situation to determine if I had a real prospect.

Action commitments will clean out your sales funnel and improve your closing ratio.

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To recap, grip onto these three imperatives, and protect yourself against a fatal plunge into the

Commodity Trap:

1. Understand the prospect buying process and connect to his vision of a solution;

2. Never assume you know how prospects or companies make decisions. Find out;

3. Always secure a prospect’s promise to stay in the sales process. Nail down next steps.

Peter Drucker said: “In a commodity market, you can only be as good as your dumbest competitor.”

See you on the upside, Bill