Don’t End Up Like Circuit City: 4 Ways to De-commoditize Your Business

Circuit City

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The story of Circuit City teaches a critically important lesson for de-commoditizing your business…

Merely selling goods and services isn’t enough to survive, let alone thrive, in the market. Learn what it takes to avoid turning your offer into a commodity, and keep your business viable in the long run.

Just a few years ago, the business world was completely different. 

When consumers had problems, the answers came from the products and services available in the market. If your offer was superior to the competition, you’d make the sale.

Today, the simple act of offering a product or service at a fair price is not enough to thrive in the market.

In fact, EVERY business (regardless of the industry) is at risk of becoming a commodity – therefore, de-commoditization is now a primary business strategy.

Your business, my business… Service businesses or product businesses… Commoditization represents a massive threat to undifferentiated goods and services, and to companies faced with fierce price competition.

How can you avoid falling into the commodity trap? We’ll get to that, but first things first, let’s go over a highly publicized example of what commoditization can do to a business.

What Happened to Circuit City?

Best Buy and Circuit City need no introduction in the United States. After all, they were THE go-to big box electronic stores… Each with a different strategy.

Circuit City used low pricing and the ability to purchase in bulk to push mom and pop stores out of the way. This allowed them to dominate the consumer electronics market everywhere a Circuit City branch or franchise cropped up.

However, they officially closed up shop in 2009… That’s 25 years after they became a listed company on the New York Stock Exchange, where Circuit City was a high flyer for at least a decade… And a total of 60 years since its humble beginnings as Wards Company in Richmond, VA.

The right to use the Circuit City name has since been sold several times, but don’t confuse it with the original Circuit City, which went out of business for good.

The goods sold at Circuit City eventually became commodities, and that’s a major problem. If a consumer could find the same product for a dollar cheaper at a competitor’s location, Circuit City lost the business.

After years of decline and little customer loyalty, Circuit City didn’t survive the 2008 recession.

In today’s volatile market, there are many stories similar to Circuit City’s… 

So, how can you make sure that your business doesn’t end up the same?

1. De-Commoditize: Update Your Buying Funnel

In the past, the buying process was more straightforward. Information was limited, and since there wasn’t much to compare, customers could arrive at a decision much faster.

That’s not how things work today. 

We’ve come to a point where buyers have limitless amounts of information in front of them. This adds an additional dimension to the buying funnel: investigation.

For example, 70% of Americans read product reviews before they buy.

They use social media, blogs, forums, and other channels to research before making purchase decisions, and unlike before, this also includes the most minor purchases.

The old buying funnel just doesn’t work anymore, the process has become a lot more complex. 

To complete today, be sure to offer your clients plenty of education. Let them know why your product/service is better… How it compares to the alternatives… And why doing business with you is a smart decision.

Buyers are actively looking for this information. If you don’t provide it for them, your competition will.

2. De-Commoditize: Answer the Three Questions Your Prospects Will Ask

In tandem with the previous point, the endless information online can create customer confusion. With so much out there about different products and services, why should a prospect choose you?

Consumers often look far beyond product features when deciding whether or not to buy. More specifically, they have three questions that you need to answer:

  1. “Why should I trust you?”
  2. “What makes you different?”
  3. “How do I know that I’m making a smart decision?”

These are the three key questions for today’s buying funnel, and that’s where your communication should focus.

In essence, customers want to make sure they’re making the best possible decision, and it’s your job to reassure them. 

In doing so, you need to be very careful about how you present your offer, which brings us to the next point.

3. De-Commoditize: Take Price Out of the Buyer’s Equation

When communicating your offer, play to your unique strengths and advantages. Show consumers why working with you is better than everything else in the market.

To do that, we work with our business coaching clients to answer the question:  

“What needs to happen in order to become the most expensive competitor in the industry and still have buyers lining up to do business with you?”

Your product or service becomes a commodity as soon as you compete on price – and answering this question is a sure way to de-commoditize your company.

That’s because anyone can lower their price at any time. At a certain point, undercutting will lower your margin until it’s untenable. In fact, research shows that a business cannot sustain itself in the long term by using “lowest prices” as a competitive advantage.

Before Walmart, Kmart was the king of low prices… But now Kmart is now one of the sad stories of corporate America.

Even then, you shouldn’t think that Walmart is too big to fail. In fact, a report showed that 86% of people no longer believe that Walmart is the cheapest, and according to Bloomberg Business Week, Target already has cheaper prices than Walmart.

Walmart may be the biggest American retailer in terms of revenue, but it’s already playing catch up in e-commerce. In the online space, Walmart is trailing far behind Amazon, a company known for making splashy announcements of unique products and services.

That’s the power of uniqueness. You get to be the preferred option, even if you’re not the cheapest.

The good news is that every business has something unique they can use as leverage. As soon as you figure out what makes your business different, you can position yourself far above a commodity.

4. De-Commoditize: Test Your Salespeople

Everyone in your company should know your unique competitive advantage. This is especially true for salespeople, whose job is to communicate that advantage to prospects.

You may even want to test your salespeople to see if they can create a preference for your product or service, and you only have to ask them one question:

“What would happen if somebody was to ask you ‘why would I buy from you, as opposed to a competitor offering the same product for 10% less?’”

During a keynote presentation I gave to hundreds of CEOs, most of them disturbingly realized their sales people used price (instead of value) as the key differentiator.

The salesperson’s answer will tell you everything about how they perceive your business. They should be able to talk about a unique benefit that extends beyond great service or quality. 

Again, the price shouldn’t be included in the discussion at all.

Set Yourself Apart

Remember, without differentiation, we’re all at risk of becoming a commodity. Unless you continue to find new ways to de-commoditize and put your company in a unique position in the market, you’ll be competing on price alone, and that it’s not enough.

Today’s buyers don’t hesitate to leave if the grass is greener (or cheaper) on the other side. Even if you can make low-priced sales, the margin won’t be anything to write home about.

Move away from competing on price. Instead, you should find a unique strength that creates preference to your products or services even if you’re more expensive.

In the long run, only unique businesses can thrive. 

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