Don't Act Like a Commodity

LinkedIn Article by Tim Williams
November 28, 2017

No doubt you’ve heard a friend in business say something like, “That’s fine for Apple or BMW, but we’re selling a commodity.” Even if your friend works for a grain processing company, that’s a remarkably misguided statement. And if you work in professional services, it unconscionable to believe that what you do is difficult to distinguish.

Harvard’s legendary professor of marketing, Theodore Leavitt, taught his business school students that there’s no such thing as a commodity; only people who act and think like commodities. Absolutely everything can be differentiated. 

Water covers 75% of the earth’s surface and is available from faucets in your home almost for free (the definition of a "commodity" if there ever was one). Yet, when branded and differentiated, water commands premium pricing and generates strong brand loyalty.

The oft-cited example of Starbucks is a remarkable example of turning something traded in commodities markets — coffee beans — into a brand experience worth five dollars. Next time you’re standing in line for your venti latte, take a look at the posters on the wall that illustrate the complex value of a great cup of java.

What is Your Product Paradigm?

It all starts with your product paradigm. What is your mental model of what you’re really selling? Here are three choices:

Supplier. The firms that sell inputs (bullet-point lists of services) effectively imagine themselves as warehouses full of parts. They drive virtual forklifts through the hallways of their firms pulling parts to fill an order. 

Manufacturer. Firms that see themselves in the business of selling outputshave abandoned the idea of selling inputs (hours, time of staff), but rather sell a finished product. 

Designer. The true professional employs inputs to produce but is mostly focused on outcomes. Professionals assess what Clayton Christensen calls “the job to be done” and design a bespoke solution. 

This last approach is the essence of professional services. “A professional,” says Michael Hammer, “is someone who is responsible for achieving a result rather than performing a task.” 

Better vs. Different

It’s a common article of faith in professional firms that the way to differentiate a service is to improve it -- to make it better. It’s true, especially in rapidly evolving markets, that a product or service must be noticeably better to gain attention. Intel founder Andy Grove preached the idea that “Differentiation occurs at 10x value,” meaning a product or service must be 10 times better than competitive choices in order to gain adoption.

The problem is that most professionals focus exclusively on getting better instead of also getting different.  Reframing an existing offering can be exceptionally powerful. The annals of marketing history are filled with examples of brands that have increased sales simply by changing the way a product is presented. One of the most convincing examples is the cereal brand “Shreddies” (marketed in Canada, Australia, New Zealand and Britain), which increased sales by more than 18% without changing the actual product in the least. 

Countless ad agencies, law firms, accounting firms and other professional service organizations possess strikingly valuable solution sets that are unfortunately served up as though they're parts on a warehouse shelf. Pricing expert Hermann Simon reminds us that “Value alone does you little good unless you can communicate it successfully.”

Simon also teaches a useful hack for identifying the real value of your offering: the “second-order effect.” He tells the story of a manufacturer of air conditioning systems for commercial trucks who was stuck in the familiar rut of marketing their product on the basis of what they believed to be superior technical specs. But specifications do little to showcase the actual value created by purchasing and installing the system. The company undertook a study that uncovered two surprising second-order benefits of a superior air conditioning system in long-haul trucking: by keeping the drivers cool and comfortable (the first order of value), this reliable system substantially reduced the number of accidents as well as sick days.

This second order of value is present in every product or service. You can find it by going beyond the expected list of “Our Services” and instead view your offerings through the lens of solutions that either increase gain or reduce pain for your clients.

Getting to Value

In professional services, one of the most useful methods for ascertaining value is to ask the five questions espoused by Mahan Khalsa and Randy Illig in “Let’s Get Real or Let’s Not Play.

1 How do you measure success?

2 What is it now?

3 What would you like it to be”

4 What’s the value of the difference?

5 What’s the value of the difference over time?

Finally, ask a question of your own leadership team: are you really in the “service” business? You'll likely come to the conclusion that “professional services firm” is really the wrong way to describe the value you create. You sell solutions based on your knowledge and expertise — not services. For this reason, my colleagues and I prefer the term "professional knowledge firm." PKF, not PSF.

As author and consultant Alan Weiss reminds us, “Most consultants place their value proposition at the wrong end of the equation; they focus on their ability to do rather than on the client’s ability to improve.”