How to escape commoditization

Jonathan Theders, President, Clark-Theders Insurance Agency Inc.

When Jonathan Theders, president of Clark-Theders Insurance Agency Inc., needed a new cell phone but didn’t have the time to drive 45 minutes to the nearest Verizon store that had it in stock, a Verizon employee offered to do it for him.

That salesperson recognized a problem and found a solution that created a lifelong customer.

“I’ve certainly become an advocate for them, which is what you ultimately want your customers to become — those raving fans, those people who spread your selling proposition, who you are and why you’re different,” Theders says. “If you follow the model of identifying an unrecognized problem and delivering an unanticipated solution, you will create raving fans. And they will become your most cost-effective salespeople in delivering referrals to you.”

Smart Business spoke with Theders about three traps businesses run into when failing to differentiate themselves and how to escape commoditization.

What stops businesses from successfully differentiating themselves from competitors?

The three basic traps that every business runs into are the commodity trap, the perception trap and the anxiety trap.

The commodity trap is when there is no recognizable difference between two brands other than price. Businesses like to separate themselves from their competitors with customer service or value-added products, but a lot of times, people don’t understand that difference. The value-added services a company provides are very likely the same ones their competitors are providing. Then it gets down to price again.

Some successful businesses consider their product or service to be a commodity. Think of online retailers that have no personal relationship with their customers; their strategy is to sell in volume, with lower margins to get the price as low as possible and hit their targets through quantity.

When you’re trying to compete with companies using that type of model, you have to come up with a differentiating connection with your customer because if you’re in the commodity trap, why wouldn’t you select based solely on price? If I can buy the exact same product 20 percent cheaper online, why would I not? You need to position yourself so that you can leverage your unique qualities or create unique qualities that allow you to stand out from the competition.

How can businesses escape the commodity trap?

There are two things businesses must do to get out of the commodity trap: Identify an unrecognized problem that the customer or potential new client did not realize it had, and then, in turn, present it with an unanticipated solution. If you’re going to live outside the commodity world, you must do these two things.

Copier paper is a good example. We all need it but it isn’t so drastically important that you have a particular brand. It is easy to obtain and there are a lot of vendors that can supply it. That is an item that you would shop — it’s in that commodity trap area.

But if a copier paper company told you its paper jams 80 percent less than a competitor’s paper, it could change your view on the product as a commodity because there is a solution for a problem that you can’t find one for — if it delivers on that promise.

Things that have the perception of being easily commoditized can still be differentiated in the marketplace based upon delivering that model of recognizing a problem and providing a solution the customer wasn’t anticipating.

What is the perception trap?

The perception trap is the perception that people believe they already know everything about your company before they hear the story. People automatically think they know your business, and it already has a connotation for them. It could be a lawyer, accountant, or someone who manufactures widgets — the prospective customer has a pre-existing perception of each of them.

You have to recognize what that perception is and create bridges to get over that if you’re going to differentiate yourself.

How can you overcome someone’s perception of your company?

You get past perception through addressing three things. I call it I3: issues, implications and interventions. First, identify your clients’ issues. Then allow them to understand the implications of those issues. Finally, have an intervention that ties into delivering an unanticipated solution.

If you can deliver on I3, you can bridge any perception issues that exist. Then people will look to you as a trusted adviser rather than as a supplier of a good or a service.

What is the anxiety trap, and how can businesses avoid it?

The anxiety trap is nothing more than the fear of standing out from the crowd, of thinking, ‘This is what everybody else does and it’s safe.’ Everyone, at some level, has fear and anxiety regarding change. When you realize that different people in an organization will have different levels of that anxiety, you have to address it, and you do that through communication.

Give people comfort. It’s not easy, changing and trying to stand out as the copier paper that is different from just the price-driven model. It’s fearful to put yourself out there and try to differentiate yourself. Recognizing that, understanding it and being able to communicate around it will allow you to stand out.

Jonathan Theders is president of Clark-Theders Insurance Agency Inc. Reach him at (513) 779-2800 or [email protected]

Insights Business Insurance is brought to you by Clark Theders Insurance Agency Inc.