In today’s “look-alike” marketplace, business owners must find ways to differentiate, innovate, connect to customers, and deliver value. An interesting logo, catchy mission statement, or the digital marketing spin you put on the same service or product you’ve had for years won’t cut it.
The Pitfalls of Commoditization
If you promise something different and then give everyone the same experience they know from past exposure, you’ll compete largely on price alone. If you don’t think and act differently, you’ll behave your way into commoditization. Commoditization is the process by which something becomes undifferentiated, where consumers reduce their buying decision to the lowest common denominator—price.
The Coffee Bean Journey: From Commodity to Experience
Take coffee, for example. Coffee is the second most traded commodity in the world. Approximately 1/3 of the world’s production comes from Brazil with the Arabica variety representing 70% of worldwide production. Unroasted “green” coffee beans are bought and sold on the commodities markets across the globe. This “green” coffee, in pure commodity form, yields an average of $2.17 per lb. on the open market.
The Transformation to a Product
The green coffee bean is then roasted, transforming the chemical and physical properties of green beans into coffee products. The majority of roasting is done commercially and then sold to the distributor for retail sale. Within this segment, there are also specialty roasters that cater to “single origin” coffees serving niche markets. The commercial roaster sells to the retailer at an average of $7 per lb. The retailer then sells to the consumer for approximately $12 a pound.
From Product to Service
The roasted coffee bean can also transform into a service. The typical coffee shop uses 4 oz. of roasted beans to generate a 64 oz. pot of coffee. If the average convenience store or quick-serve coffee shop sells an average 16 oz. cup, that would equal about seventeen 16 oz. cups of coffee per brewed lb. If we use the McDonald’s 16 oz. average cost of $2.49, the gross sales would then equate to a yield of approximately $42.33 per lb.
From Service to Experience
Enter Howard Shultz and the evolution of the bean’s value proposition transforms into yet another dimension—experience. Armed with a mission to, “inspire and nurture the human spirit – one person, one cup and one neighborhood at a time,” Starbucks has grown to over 32k locations worldwide with a market value of over $86.7 billion. Using the average 17 cups per brewed lb., that would equate to a yield of $76.50 a lb.! Two daily Grande Café Americanos at Starbucks will cost $270 a month, $3,240 a year, and $97,200 over 30 years!
Avoiding Commoditization in Your Business
The second most commoditized product on the global market, the coffee bean, transforms from a yield of $2.17 to $76.50 a lb. through the phases of commodity – product – service – experience. Where do you fall within this value stream within your own business? Margin erosion, declining market share, non-recurring revenue streams, and higher customer turnover are all telltale signs it may be time for a check-up.
Shifting from Commodity to Unique Experience
Escaping commoditization requires a shift in your thinking and the way you look at, and value, employee and customer relationships and overall customer experience. If you don’t want to be another commodity, you need to evaluate your culture, redefine your value propositions, and focus on your overall customer experience. You won’t develop meaningful, nor profitable, relationships if you’re just another “professional copy.”
Building Meaningful Connections
Demonstrate your desire to earn business and the loyalty of your clientele both as a business client and as a friend. Friends care about the deeply satisfying emotional rewards and other results that arise from interacting with people who truly care about them and their interests.
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