If your marketplace is changing faster than your business, then you're going out of business...

Commoditisation

How are you defending your margins? (Are you defending your margins?)

If you need to raise your prices but are worried about how your customers will receive them, then you (and your sellers) need to fully understand your Value Proposition. You also need to consider your sales model.

Ask yourself the following questions. Do your sellers:

  1. Routinely trade more business for lower prices, or routinely gain more business at the same price?
  2. Make unsupported claims about superior value to customers, or demonstrate and document claims about superior value in monetary terms to customers?
  3. Focus on the revenue/volume component, or concentrate on the gross margin/profitability component of their compensation plan?
  4. Give price concessions without changes in the market offering, or only give price concessions in exchange for cost-saving reductions in the market offering?
  5. Complain that our prices are too high, or else complain our proof of superior value is lacking?
  6. Give services away for free to close a deal, or strategically employ services to generate additional business?
  7. Prefer to give quick price concessions to close deals and go on to other business, or are willing to “hang tough” in the negotiations to gain better profitability out of each deal?
  8. Believe management pursues a capacity-driven strategy, or believe management pursues a value-driven strategy?
  9. Sell primarily on price comparisons with competitors, or sell primarily on customer cost of ownership comparisons with the same competitors?
  10. Tell us customers are only interested in price, or tell us customer insights to improve the value of our offerings?

Did you spot a recurring theme? If you found yourself answering “yes” to the first half of each of these statements* you are probably on the slippery slope to full blown commoditisation, and if you think your margins are tight now, carry on selling in the way that you are selling and see how tight they can get.

The value mapping processes we follow will move your sellers from being price takers to becoming value creators, and then you will be able to build your sales growth on higher prices.

  • These statements were drawn from “Value Merchants: Demonstrating and Documenting Superior Value Business Markets”. James C. Anderson, Nirmalya Kumar, and James A. Narus, Boston: Harvard Business School Press, November 2007.

“It was a difficult decision to take to get started on this. The trigger point was realising that half our business wasn’t generating any margin for us. – CS, Chief Exec

We’ve posed a lot of questions on this page, fortunately we also have a lot of the answers, though you’ll only get to these if you call us, or fill in the contact form below. We look forward to hearing from you…

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