How To Avoid Competing On Price, Written By B2B International
COMPANIES THAT SELL raw materials or simple components face a marketing problem - how to give their products recognisable benefits which differentiate them from competitors. A popular tactic is to cut prices in the belief that this is the principal motivation influencing buyers; there being little to choose between other features such as quality, delivery and service. The unfortunate result may be a price war, as competitors retaliate in an attempt to maintain market share. It is our contention that to sell non-differentiated products chiefly on a price platform, is both economically disastrous and unnecessary. This article seeks to show how to avoid price cuts by adopting a more professional and profitable marketing stance.
For most purposes non-differentiated products can be defined as those which are made to a common standard and where the consumer sees little difference or advantage between them. They are also often, but not always, characterised by a low requirement for service, they tend to be purchased regularly, have a minimal superficial design content and a low level of brand loyalty. Perfect examples of non-differentiated goods are commodities which are graded for quality according to agreed international standards. Copper, wheat, cotton and coffee are all non-differentiated products whose prices are determined exclusively by supply and demand.
Our interest lies one step beyond commodities, in products which are marketed by companies as opposed to being sold at exchanges or auctions. The fact that a product is marketed means that an element of service is involved and a degree of differentiation is introduced. The reason for this is obvious: there are few circumstances in which buyers select goods for their own sake and pay no regard to delivery and service. Research has shown beyond doubt that buyers find it hard to separate in their mind a company’s image from its products range. Thus, once a product is marketed, it or the company will develop a personality which to a greater or lesser degree can be differentiated from competitors. For this reason it could be argued that there is no such thing as a non differentiated product. In the harsh world of reality however, most marketers have faced situations where buyers consider the wares put before them and claim they are no different from others in the same class.
There can be no denying that in the eyes of buyers non differentiated products do exist, and marketing managers must consider every means open to them to avoid competing on price. Products move through a value chain in which the level of non-differentiation decreases. At one end of the spectrum iron ore, pig iron, billets and rod are non-differentiated, whereas at the other, machine tools are quite clearly seen as very different within their own genre.
Manufacturing processes are seldom identical even though the end products appear the same. The first place to look for a differentiating feature is in the raw materials, the processing equipment, utilisation of labour, or processing control. Sales stories are not hard to find if every aspect of the manufacturing process is examined. For example, specially selected steel qualities guarantee uniformity in the manufacture of pressings; modern rolling plant ensures closer tolerance in rod production; a large inspection staff produces goods with fewer rejects.
It is especially important in industrial markets to draw the buyer’s attention to an element in the company’s manufacturing process which suggests its products are of a higher quality than those produced by competitors. Decision makers whose job it is to specify which companies’ goods should be purchased span a number of disciplines. Technicians are frequently represented in the decision process and they are especially concerned with quality. Professional buyers stake their reputation on their suppliers and so, whilst more concerned with price than technicians, and recognising the importance of quality – to them it represents value for money and job security. Even buyers with the largest of purses, such as those employed by the motor vehicle manufacturers, believe it is imperative to obtain components in the right quality and quantity with price ranked third as an area of interest.
The marketer does not need a unique feature in order to differentiate his product from the competition. Indeed, the feature which is sold to the customer could be imaginary as long as it is seen as a benefit peculiar to that product. Research has shown that motorists say there is little to choose between the quality of different brands of petrol, and yet many manufacturers have managed to achieve differentiation with nebulous promises. In the past, campaigns such as National’s freedom of the road, Shell’s economy and Esso’s tiger in the tank successfully differentiated these commodities. Today the emphasis is on convenience and food - but the effect is the same, the brand is emphasised and attention is deflected from price.
This process of building up brand consciousness is well recognised in consumer markets, much less so in industrial sectors. Nevertheless a few industrial companies have achieved a very high level of product awareness. Most buyers of ready mix concrete think of RMC first; and associate steel shelving with Dexion. In each case the product is undifferentiated and yet many buyers regularly place orders with these market leaders, despite price cutting by competitors. Buyers are thought to be totally rational in their selection of suppliers, whereas in practice habit, loyalty, security and ignorance play an important part.
Manufacturers of non-differentiated products are frequently their own worst enemy. In the belief that products are bought chiefly on price, they employ order-takers rather than a professional sales force. The lack of sophistication of the representatives in the field means they are unable to counter pressure exerted by buyers to reduce prices, and the result is lost business or a trimming of margins to the bone. In contrast, a high quality, well trained sales force carries with it an image which rubs off on the product itself. Furthermore its selling ability ensures sales are not lost on price without a fair fight.
THERE MAY BE AN OPPORTUNITY to differentiate products by making design changes which in no way affects performance. Many years ago Esso introduced a blue dye to their paraffin and Aladdin coloured theirs pink. These standard products were immediately recognisable from competitors. The scope for changes of this kind in industrial markets is great. Traditional dove grey steel shelving could be brightened by colouring it orange which would cost no more. Similarly, the outer covers of industrial cables would be more noticeable and therefore safer if they were made in distinctive colours.
Differentiating consumer goods through the use of packaging is well understood. Industrial companies should not ignore its many possibilities. The Japanese were quick to identify a problem that faced companies purchasing wire on returnable spools - the normal method of packaging used by UK manufacturers. The traditional spools are large bulky items to manhandle, require expensive storage space and involve both the supplier and consumer in much paperwork. Japanese manufacturers designed a lightweight tubular version which reduced transport costs, made handling easier and could be discarded after use.
Service is another common and highly desirable feature which is used to differentiate products and companies. Buyers select a package when they opt for a supplier, and one element is service. This is often given a low score when buyers are asked its ranking in the decision making process. However, service tends to be taken for granted under normal conditions and is only noticed or appreciated when things go wrong. Service is a broad concept but in reality it describes the ability and willingness of a supplier to bend over backwards to help. It includes the speed and efficiency of sales staff in dealing with enquiries and orders, delivery performance and the supply of technical help should this be required. The possibilities of differentiating products by selling service are endless.
A manufacturer of chain link fencing instigated a programme of back-selling to local authorities as a service to his distributors with a resultant increase in sales and customer goodwill. A fibreboard supplier held one day seminars in numerous cities to educate his customers in the technicalities of the product's manufacture and also to raise its image.
Seeking unique product benefits, whether actual or imaginary is an important means of separating a product from the crowd. Heavy advertising and high quality salesmanship puts the product on the tip of buyers' tongues and ensures its image is held high. Design changes of colour, shape or texture, can provide a distinctive feature differentiating products thus moving them off the price treadmill. Rethinking the method of packaging for even the most basic raw materials is an effective differentiating tactic and may well result in positive benefits to the user which command a premium price. Finally selling service in its widest context is an opportunity to divert attention from the product itself and show how the package that is being offered is superior to all others.
Differentiating the non-differentiated product is less easy than price-cutting. It requires flair, hard work and a full understanding of the market. But it is much the more profitable option.
B2B International Ltd
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Tel: +44 (0) 161 440 6000
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