4 Tips To Avoid the "Commodity" Trap

By Brian Everett, CEO of the Transportation Marketing & Sales Association

In transportation and logistics, all too often the value of a company's service or product is minimized - and what they offer their customers is "commoditized." How often have you heard a sales executive blame commoditization for failing to deliver a sale or new block of business? Sometimes this can be a convenient excuse, but in many instances it's a valid point because the company's business model has fallen into that trap.

The truth is, when a company provides no added value (or perceived value) other than capacity or a common service, it becomes just another option - and customers likely will look for just the lowest rate to move the freight. Squeezed margins and churn-and-burn responses to RFPs with substandard value usually will reflect business results of the provider of service.

So what can marketing and sales professionals do to change this?
While top management likely will need to be "bought into" possible solutions, you can make a strong case to shift your business approach that will ultimately transform your sales from daily transactions to long-term contractual agreements.

Here are four strategies I've heard from TMSA members that have successfully made an impact on minimizing the commoditized nature of businesses:

1. Innovate Your Value. Get out to meet your customers with intent and listen more closely to their concerns. Ask questions about their networks and supply chains, and look for pain points rather than just respond when they call you with an immediate need. Be proactive. Of course, this change in approach needs to be deliberate - and sometimes cannot happen overnight without the proper strategy, resources and/or training. Make sure you and your team are prepared for more "consultative selling" with your customers. Put the processes and methodologies in place internally so you don't just shotgun through the sales process.

2. Have the Right Pricing Structure In Place. Look at how you're setting your pricing. The most overlooked investment a marketer can make in advance of inevitable commoditization is a CRM system that allows computation of the profit margin associated with each customer, based upon price-paid less cost-to-serve. You may need to invest in these information systems to have the information readily on hand once margins start being squeezed. Take a long, hard look at your product, service, and lanes - and make sure to establish a product development and pricing approach that doesn't just spew out pricing to be the lowest bid.

On a related note, to avoid being identified as the low-cost provider, create a more sophisticated pricing structures so customers cannot easily make side-by-side comparisons. This can be done, in part, by developing more value-added options to your overall package. Ultimately this will discourage the customer to quickly and easily make cost comparisons.

3. Target the right customers. Instead of chasing every sale or transaction, focus on customers willing to pay what your service or product is worth. Decide which customers you do NOT want to serve, try renegotiating with them and, failing that, fire them. You will lose market share but may quickly find that you improve profitability. Focus on the 20% of customers that are "right" for your business; don’t worry about losing the other 80%. That approach has helped small truck broker I know - they claim to have grown revenue by 18% annually in the past two years even they whittled down their customer base from more than 200 to just 50 over six years. An added bonus to having clients who truly appreciate the company’s value proposition: retention of strong, talented employees.

4. Compensate for the Behavior You Want from Your Employees. With many 3PLs or trucking companies, the first contact is with a harried sales rep who wants to book one load so they can move onto the next one. Their paycheck depends upon it. By contrast, more and more companies in this industry are being more strategic about their has completely changed their pay structure to align compensation with the company goals by identifying the behaviors that encourage employees to engage and achieve. By creating profit for their people, they profit from their people - and everybody wins. Strategic compensation planning and design helps companies align for action and realize results. If you want to grow "share of customer" rather than just amping up transaction count in your business, then reward your employees for the results they're able to generate by collaborating with your customers to be more strategic about the value you provide. Consider compensating your salesforce on profit margin, not sales revenue. A volume-based salesforce will sign up any customer, regardless of profitability.

Whatever your approach to commoditization, try to innovate at all costs to avoid it. As Peter Drucker said once: "In a commodity market, you can only be as good as your dumbest competitor."

 

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