How to increase your profits when selling commodities (and almost everything else)
Published: August 2023
Many of our clients in commodity markets come to us feeling trapped—struggling to compete and survive as competition drives prices lower. Their question is simple:
How can we grow our business if price is the only thing that matters?
In answering the question—and growing many commodity businesses—we have found three things to be true:
- Price is rarely the only thing that matters (even in commodity markets).
- A commodity product need not imply a commodity experience.
- Winning companies focus on customer lifetime value rather than one-time purchases.
In many commodity markets, “the winner takes all” (or at least “the winner takes most”). It is particularly true of online businesses. That truth carries an important implication:
If you want to be twice as profitable as your competitors, you don’t have to be twice as good as them. You just have to be slightly better.
This phenomenon is sometimes called the “slight edge.”
We have already shared many strategies for developing your own slight edge in pricing, offers, and competing with Amazon. The following article contains strategies especially relevant to companies selling commodities.
11 effective strategies for selling commodities
Offer a low initial price, then make money from subsequent sales. For example, many subscription companies (such as internet providers and television networks) offer discounted fees for the first six months of the contract.
Upsell or cross‑sell your customers. Low-cost airlines are experts of this tactic. After you choose a flight, the airline will upsell luggage capacity, legroom, speed of boarding, and more. Once in the air, you are cross‑sold food and drink, duty‑free goods, or destination car hire. Ryanair even sells inflight scratchcards to help pass the time. Customers are thus able to select the components they value. Few flyers ever pay the commodity price.
Create a unique offer so it can’t be compared with competitors. Cell networks work hard to create unique plans that include a Netflix subscription or unlimited data for popular social networks. The most successful examples add genuine value for the customer.
Price lower than your competitors for products or services that can be compared directly, and have higher margins on others. Supermarkets compete on staple products like bread and milk—because people know what these items should cost—and make a profit on others, such as prepared foods and beauty products.
Market your product for a particular audience niche. Manufacturers of computer monitors sell gaming‑specific versions that offer slightly tailored features and designs.
Give reasons why customers shouldn’t shop just on price. Do you pay your workers a fairer wage, have a better warranty, or use 100% renewable energy? If so, let your customers know.
Have the lowest “first-purchase” price, then profit later from related products and services. Home security companies sell low-priced hardware, profiting from the subsequent subscriptions. Razors are cheap to buy, and the companies make their profits on the blades.
Include personal rewards and extras for your customers. This strategy is particularly effective (and common) in B2B markets—where customers shop with their employer’s money. Consider ways of personally rewarding them. For example, make the order process frictionless, airlines give air miles for personal use, and office supply companies include free chocolates.
Reframe your commodity as a solution. Prospects buy solutions because of their value, not their price. For example, a sun cream could be marketed as simple UV protection or a solution to avoid premature aging. Building materials such as ceiling tiles are often sold as systems—with the tiles, connectors and fittings comprising an easy-to-install system.
Give away information, because it costs very little and can be really valuable to customers. In 1900, fewer than 3,000 cars were on the roads of France. To encourage people to travel more—thereby boosting car and tire sales—Michelin distributed 35,000 free copies of their first guide, the Michelin Guide. It is perhaps one of the most well‑known marketing strategies of all time.
Be top of mind when it matters. Diaper brands provide free supplies to neonatal units. Food manufacturers negotiate for eye‑level positioning on supermarket shelves. Look for ways to get your product and services closer to the places (and moments) where your customers need them.
Now it’s time to develop your own “slight edge”
Many of our clients thrive in commodity markets, using the strategies above. By being slightly better than their competition—developing their own “slight edge”—they’ve seen game-changing profits.
Now it’s your turn.
Pick a strategy—aim for the one that matters most to your customers—then, once you have a “slight edge” over your competitors, don’t become complacent; choose another.
Where will you start?
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