Newsletter #11: Is your business in the commodity death spiral?
The Commodity Death Spiral usually starts in the same way: Market-facing innovation takes a back seat to other pursuits. The business may be focused on acquisitions, more customer “intimacy,” or simply hitting its financial numbers each quarter.
These aren’t unworthy pursuits… unless the business has taken its eyes off market-facing innovation. Let’s imagine that is what's happened in your business. We'll walk through the downward spiraling steps your business could take if it doesn’t “wake up.”
Me Too Products: Because your business stopped innovating for customers, you are left with undifferentiated products. You can’t (with a straight face) say why customers would prefer your products over competitors.
Lower Pricing: This means your products are interchangeable with competitors’ products, a fact that has not gone unnoticed by your customers’ purchasing agents. They, of course, demand lower pricing.
Lower Profits: Lower prices for your products can only mean one thing for you: lower profits. You’ve long ago wrung out any variable cost savings (like lower raw material costs) that could preserve your profit margins.
Budgeting: That’s too bad, because it’s budgeting time and your boss seems quite interested in your plan for next year. Do you say, “Boss, we need to plan for business profits going down next year”? Hmmm, let me think. I’ll guess... “No.”
Reduce Costs: Instead, you promise the same or higher overall business profits. Now if your profit margins on products are declining--and you can't reduce your variable product costs--your only choice is to reduce fixed costs.
Cut R&D and Marketing: But which fixed costs? You can’t fire your sales force: Without them next year, your sales would come crashing down. So you cut R&D and marketing, right?
Less NPD Capability: But this means you’ll have even less new product development capability next year. You won’t have the needed marketing resources to understand customer needs or the R&D staff to meet those needs.
Fewer Options: But of course, you make those cuts and now it’s a year later. With reduced R&D and marketing capabilities, you now have even fewer options to escape this downward spiral.
Death or “Life Support”: Eventually, you reach the point of no return, and your business dies. Or it goes on “life support,” and is no longer relevant in your industry. It gets picked up by private equity at a bargain price, or the remnants are absorbed by a successful company. Either way, the employees seldom gather for a celebration.
Any of this sound familiar? It happens when business leaders forget their number one duty is, “Leave your business stronger than you found it.”
Avoiding this fate requires constant vigilance, because you’re in a constant tug-of-war to avoid commoditization. Pulling you toward commodity are…
Against all this you have only one defense: New products that deliver more customer value than competitors. It’s sobering but true: Specialty forces come from you, the supplier… or they don’t come at all.
Now don’t be discouraged, as we’ll cover practical ways to do this in future newsletters. Here’s a preview: We’ll keep returning to our primary means to achieve rapid, profitable, sustainable growth: “Understand and meet customer needs better than others.” This is our mantra for market-facing innovation.
So which of these two actions—"understand" or "meet"—will be key to your success? I won’t be encouraging you to invest a little more in R&D so you can do a little better job of “meeting” customer needs. No, I’ll suggest you invest a little more in B2B-optimized voice-of-customer methods so you can understand customer needs a lot better.
In effect, you’ll start doing a better job of “aiming” your massive R&D resources for superior market-facing innovation. In a sort of "warped" way, this plan makes sense today simply because most B2B companies are not doing it. (This will surely change, but probably not soon.)
But that’s all coming in later newsletters. For now, please check out this 2-minute video from my (free) B2B Organic Growth series.
Consider having a serious discussion with your business leadership team around these questions:
This is a difficult topic, but a critical one. I’d love to hear your comments, questions and suggestions!
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About the author: Dan Adams is the founder of The AIM Institute, and author of the book, New Product Blueprinting, the blog, Awkward Realities blog, and the 50-video series, B2B Organic Growth. He is a chemical engineer with many patents and awards, including a listing in the National Inventors Hall of Fame. Dan has taught his B2B innovation methods to tens of thousands of B2B professionals globally, lectured at many leading universities, and is a popular industry keynote speaker.
Consultancy & Training - Continuous Improvement, Six Sigma, Lean and Analytics.
2 年My lived experience of the commodity death spiral confirms the short term financial view is always a path to nowhere.
Entrepreneur, Business & Process Specialist
2 年Simple and very true. Everyone knows this, yet Leaders continue push down the same path. People forget that Innovation starts at the interphase of customer's needs and front-line technical sales entrepreneur.
Let's connect +31 6 53 94 27 35 to explore ∑1+1=3. Creating Business Value
2 年Well I guess that is exactly what Dr. Noriaki Kano identified as the 3 levels of customer expectations to positively impact customer satisfaction. Expected-, Normal-, and Exciting- features in your products and services. And the dynamics that go with these 3 of, what was once Exciting will become an Expected over time. Even becoming very cheap won’t help you survive. So either be cheap and fast follower or make an honest profit when you know how to keep exciting customers in every aspect of all different jobs to be done in their customer journey, today and in the near future. Like in any human relation, if you want to thrive, you better master listening skills.
Only way up, and long-term strategy and results are greatly based on business health short term. What works now, has more opportunity to grow ?? Dan, thank you for sharing this CDSpiral concept.