Amazon embraced commoditized markets like books
  • December 3, 2020
  • Kyle Stewart
  • 0

When all the services and products are the same, it’s hard for sales people to succeed outside of discounting. But it doesn’t have to be.

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Selling In a Commoditized Environment

One of the greatest challenges for salespeople and businesses in highly competitive markets is the commoditization of goods. Whether it’s digital music (MP3s), books, frozen French fries or lay flat hose – the problem is the same; if there is nothing different in the product, why would someone pay more for yours? Why would they choose to buy yours at the same price? How do you find new customers without incentivizing based on price?

Wal-Mart has found this issue time and time again when entering new markets. Once the world’s largest retailer (now Amazon hold the title), Wal-Mart attempted to save their music sales business by offering MP3s to compete with Apple’s iTunes music store. They sold the exact same product (MP3 files) but at a noticeably cheaper price at its distinctive “$.88” per song. It didn’t work even though the price was 11% cheaper.

Wal-Mart tried to buy its way into the online market by purchasing Jet.com, a competitor to Amazon Prime. Jet focused on bulk sales (like Wal-Mart’s own Sam’s Club) delivered to customer homes. This too fell flat ending with Wal-Mart all but writing off the $3.3bn investment.

If Wal-Mart, an American institution with a market cap of nearly half a trillion dollars, can’t overcome commoditized markets even with a pricing advantage, what hope is there for the rest of us?

Embracing a Commoditized Market

Amazon, by contrast, began as an online book store. Jeff Bezos, founder of Amazon and richest person in the world (currently), became enamored with the internet after conducting research as an analyst on Wall Street.

To test his idea of an “everything store” he sought out commoditized markets. He chose books because every book is the same.

“books were pure commodities. Books carried in one store were exactly identical to books carried in another… buyers always knew what they were getting.” – Brad Stone, The Everything Store

Bezos moved Amazon into CDs next under the same principle. He was clear that he wanted to focus on the customer and had no concerns about standing out. He discounted books some with respect to the cover price but Borders and Barnes & Noble did too. But unlike other online retailers of the “Dot Com Bubble”, discounting its way into people’s lives was never the method.

Amazon listed every book in its available universe and when a customer ordered a copy, the company would hunt one down and buy it. Bezos felt so strongly that building a great customer experience would have customers coming back regardless of whether they were cheaper. Amazon Prime members actually pay more for Amazon purchases than the general public by way of its $120/year subscription cost.

Amazon embraced commoditized markets like books
Amazon embraced commoditized markets like books

How to Stand Out

Most of our clients aren’t selling MP3s or books online, but rather oil & gas services. Some aspects of the industry have the appearance of being commoditized, but that’s simply not the case.

The old adage says, “I can be cheaper, faster or better – pick two.”

That is to say, if you want a better product it either won’t be cheaper or won’t be faster, the opposite correlations are also true. But that should guide the salesperson’s focus some.

What service elements can your business add that the competition can’t? Is it 24-hour delivery, better customer service, finance terms that are more favorable? What is the button that you can press that will cause your client to pay at least (if not more) than they do for a comparable product?

Some salespeople would say, “Nothing.” To them, I’d ask them to think of breakfast. Orange juice has been a commodity for decades. How did Simply Orange achieve a premium over Minute Maid? The latter is far more established, both brands are owned by Coca-Cola so leadership ultimately is the same. The answer is that Simply uses different bottling (clear plastic not printed cardboard), it boasts of quality, branding is basic, and they charge more.

Part of selling your commoditized product for more is about branding, but that doesn’t mean painting lay flat hose, or adding rims to frac tanks. It means that there should be an air of quality and precision around your product. Is your hose more reliable? Does it cost less for the customer to use even if your price is higher? Is there less downtime, do your delivery people show up on time, do you simply remember the client’s pain points and attempt to mitigate them?

Any company can define their own advantage and it shouldn’t be price. We are all willing to pay a little more for a commodity that we believe has something that makes it worthwhile.

Cutting the price wasn’t what music listeners were looking for in MP3s, it was the ease with which they could play music on their iPods. Amazon customers weren’t looking for a cheaper price on books, they wanted a company that could deliver any book they wanted. Simply Orange customers didn’t want a cheaper juice, they wanted a better one.

Conclusion

Businesses and salespeople need to define their advantage and play to it. Be open with clients about pricing if it comes up, “We will never be the cheapest, but we deliver” or “or product is more reliable” or “we mitigate your risk onsite.” If your team is unsure, ask your operations team why they are better than the competition and use it. Head out to customer sites yourself and look at the competition, ask a customer who went for another provider. But if they tell you it was a lower price, don’t take them at their word, after all, it’s their job to drive down costs, it’s your job to deliver for clients.

What do you think? Are you stuck in a commoditized sales environment? Have you struggled? Have you succeeded? Share your story with us.

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