Building More Value into Commoditized Products

By | May 19, 2010

The blog “Steps to Take Before Purchasing a Digital Press” got some great feedback. I responded to Henry’s comments in the blog about image quality and reliability and made the case that “drift happens”! But I wanted to dive deeper into Dennis Beck’s great comments. In the blog it says, “Your selling price falls within a range between your TCO (total cost operation) and the highest competitive price in your market place.”

Dennis Beck responded: I don’t agree that your price must fall between TCO and the highest competitive price in your market area. I believe that part of the structure of pricing is the value that can be placed upon the product that the customer holds. That is, how much does he value YOUR SERVICE. Your product is only one aspect of that. Some customers want the lowest price and they could care less about your service – that is, they want it now and they don’t care how you do that. These are the worst customers and the ones to avoid. However, your best customers are those customers that value your service, where price is not the main reason they deal with you. These customers will pay more than the “highest competitive price” because they want YOUR SERVICE AND ATTENTION. I believe that examining your main customer bases is as, if not more, important than negotiating the click charge.

Dennis makes some important and valid points about value. I agree that we should focus more on customers who appreciate the value of great service and less on customers who focus just on price. If you have to compete on price alone it becomes a bidding war and everyone loses. I discuss this all the time with printers. But they tell me it’s getting more and more difficult to differentiate certain products based on the value of service.

For example, black and white toner pages are sold mostly as a commodity. Sure you can talk about fast turnaround times, reliable image quality and maybe even offer a web-to-print solution for easy ordering. But when a lot of companies offer those same services, it can still come down to price.

How do you build more value into a product that has become commoditized? That is the $100,000 question.  All companies struggle with this issue and different companies have tried different strategies.

A few successful strategies have been demonstrated. One strategy that has been working for the last decade is to offer more services under one roof (i.e. mailing, fulfillment). Another strategy is to make the purchasing experience more convenient to customers by offering a web-to-print solution to offer easier ordering, greater interactivity in production (automated preflight, on screen approval) or automatic billing. Another successful strategy is to change the product. For example, as direct mail campaigns decline due to changing or increasing postal costs some companies are starting to offer cross media marketing. Instead of just offering direct mail alone, some companies are combining direct mail with email marketing, SMS texting, Purls and even the newest technology known as QR codes.

In summary, I agree that we have to build more value into our products. The challenge is how to do that. How do you add value to commoditized products?

Howard Fenton is a Senior Consultant at NAPL. Howie advises commercial printers, in-plants, and manufacturers on workflow management, operations, digital services, and customer research.

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4 thoughts on “Building More Value into Commoditized Products

  1. Shane Van Fossan

    Good Afternoon Howie,
    I recently read your article on adding value in commoditized products and agree with your opinion. In my opinion it is sometimes difficult to add value for a customer, however that is where innovation comes into play. As other organizations join the marketplace, the leading companies should continue to focus on value-adders and not destroyers such as competing solely on price. I graduated from an MBA program at Nova Southeastern University which was based on adding sustainable value over time and can appreciate your understanding of how value can effectively and efficiently enhance an organization’s competitive advantage.

  2. lee weiner

    I agree that the key in the digital print world is creating and showing value to your clients. The low cost shopper can find plenty of solutions online with all the printers competing in the cheap printing space. Digital printing allows us the opportunity to create value for the client and the client is willing to pay for this type of service. Direct mail is not going away anytime soon but we must be creative in the solutions we develop so the client sees the value and wants to continue using your companies solutions for a long time. We feel that value based solutions are the way to build a very tall fence around our clients so they continue to run long term direct marketing campaigns. The more value you can show the more you can commoditize your solutions and the more you can charge (we are in business to make money).
    Lee

  3. Howie Fenton

    Shane and Lee,
    I am glad you guys joined the conversation and expressed your opinion because this can be a very controversial subject. Often conversations about price and value can de-evolve and enrage people. But I have been luckily lately. Last week I made a presentation for the Rocky Mountain DMA (RMDMA) and was pleased to get similar reactions. The presentation was entitled “Increasing Your Marketing Effectiveness with World Class Variable Data Ad Campaigns”. It focused on how some leading companies are combining traditional marketing strategies (Preference and Trigger marketing) and/or new marketing tools (QR codes, Social Media) to create unique solutions with a compelling value proposition. The simple fact is that we have to constantly reevaluate the success of our value propositions and more often then not make mid-course corrections to maintain a high value … but that is another blog. So thanks again for sharing your thoughts!
    Howie

  4. Tina Stelzer

    Consider the objective of the customer’s print communication, don’t look at it in terms of the job they sent, or print specifications. Can you roughly determine the value of this communication to your customer? If the content of the print communication you’re producing is worth a possible X% response rate and their product sells for $Y, it’s worth considering this when you’re evaluating what to charge for a program or service. Your ability to add follow-up services adds to this value. If you’re selling marketing services, you’re also selling mailing, response analysis and suggestions for a more effective piece. You’re also demonstrating an ability to partner to reach THEIR customer. This means more to a customer than just a postcard. And sure, good image quality, on-time delivery and jobs being right are what you need to do to reach the benchmark. Realistically, this isn’t always considered ‘value-added’.

    Obviously, price gouging is not what I’m suggesting, but to be a solution provider, you need to resist the temptation of “cost-plus” pricing. Very, very hard to resist because it’s tangible and easy to justify in the old-school way, but it’s step one to avoiding commodity pricing.

    The goal here is not to have to compare your pricing to the printer next door. The intent is to show how you’re a different business than the printer next door.

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