Over the years, I’ve seen companies amplify their success by focusing on a clearly specialty or clearly commodity strategy.
In simple terms, a commodity strategy involves targeting customers whose primary decision making factor is price. The specialty strategy simply involves targeting any factor but price. The specialty strategy leads to lower volumes in most markets. This is because the customers who will pay for premium features or service are outnumbered by the price-driven customers. With that lower volume, however, we also see much higher margins. These higher volumes are why many smaller and medium sized companies see the best profitability coming from the specialty approach.
It’s pretty clear that cost advantages weigh heavily in favor of online businesses when pursuing a commodity strategy.
At this moment in time, many online markets are dominated by large, commodity-focused players who want you to buy from them because their prices are low. So how does the smaller player compete in this world? As with classic approaches from 20 or 30 years ago, the key is the clearly focused specialty strategy.
With a specialty strategy, we are targeting customers who want the right product or service, and prefer that to a less ideal offering at a lower price.
This kind of customer may buy $2,000 shoes – or beer that costs ten cents a bottle more. The focus for the customer is the value they perceive – and the price is secondary. Extreme specialty customers may pay ridiculous prices for top-shelf offerings that are only one or two percent better, but there are plenty of markets with more moderate specialty customers. Buying a branded product that costs 5-10% more than the cheapest alternative is a fine example. Using a specialty strategy online we can highlight specialty value. Seeing this value would appeal to the customer that would make this kind of purchase.
When we pursue specialty customers offline, we can look for advantages in location and service that aren’t available online.
In addition, commodity competitors may be offering high-end products for cheaper prices (think a Rolls-Royce for $5,000 less). This means that – while confined to the restrictions of the digital interaction – we need to provide excellent products and services with some distinction that the specialty online customer will value. This is no small feat.
There are five key ways we can add the value that our commodity competitors cannot or will not match, in our digital strategy.
1. We can assure a superior digital experience.
This one is challenging simply because the commodity players, who are much larger, may be willing and able to invest much more in their digital platform than we can.
2. We can blend in superior non-digital elements.
Features like live chat, physical locations and more expensive customer contact options that humanize and personalize the interaction add value.
3. We can simplify the customer’s buying process by curating our offerings.
Sure, you may be able to find a bigger selection of aquarium accessories on Amazon, but a specialty player may offer only the ideal accessories for specific customers.
4. Beyond simple curation, we can add a large dose of expertise in a focused market area that would be too expensive for a commodity competitor.
For example, in the aquarium example above, we may offer both products and advice specific to one variety of fish on a page, along with videos, interest groups and offline events that go far beyond what the commodity players want to do.
5. We can create or seek out solutions and packages that add specific value for a segment of customers.
For example, we might offer a “Neon Gobi package” to fish fanciers who like that particular species, with appropriate tanks, a monthly food delivery program, informed support staff, etc.
All five of these approaches count on a very simple fact.
Commodity competitors just want to move products or services with the lowest effort and cost. Many commodity players don’t really want to know much about their product, beyond how to deliver a good product cheaply. Those that attempt to add value find that only free or very inexpensive value-added tweaks work for the commodity business model. Anything beyond that drives costs up enough that it becomes difficult to maintain margins with a truly competitive commodity price.
When you look at your business, do you see a clear strategy targeting either commodity or specialty customers? Which one works best for you? If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process, so you can focus on the content of your strategies. If you’d like to explore how you could do this, please contact me at email@example.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings, and have a great understanding of how to best use your planning time. Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.
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