So, as the Tour de France winds down, that means that dozens of the world’s finest cyclists will have pedaled 2,300 miles over three weeks on their way to Paris.
Much of it downhill…at 60 mph…racing to the bottom.
Most companies find themselves involuntarily swept up in a similar race to the bottom. Whether combatting overseas competitors, addressing customers’ radically low price expectations or grappling with the next cost-reducing, technological advancement, there is a seemingly inexorable force pushing prices downward.
No matter how unique and proprietary a product or service seems today, it is likely destined (some would say doomed) to becoming tomorrow’s commodity. In his intriguing book Free: The Future of a Radical Price, Chris Anderson, editor of Wired magazine, describes this process by which once-proprietary products or services eventually are made so cost-effective by technology and engineering efficiencies that their price declines almost to the zero point.
Similarly, the massive availability of data has made once proprietary information, held by a small group of insiders, the entitlement of all. This has revolutionized the buying and selling of automobiles, real estate and private jets.
Credit Moore’s Law ( which says that computing power doubles every two years for the same approximate cost) for much of this problem, as so many innovations have their roots in digital technology. But another challenge—imitation by competitors—is a powerful one that is centuries old, but has taken on light-speed velocity in a global economy. Copying a proprietary idea is such a powerful business strategy now, that Harvard Business Review recently ran an article by Oded Shenkar and Scott Berinato entitled “Imitation Is More Valuable Than Innovation.”
In this commoditization of nearly everything, the customer is clearly in the driver’s seat. This customer empowerment is exemplified by RedLaser, the iPhone app that allows the user to scan a product’s UPC barcode at a store and then instantly search hundreds of Internet sources for the same product, only cheaper. The newly-empowered customer can either order it online for less or present the smartphone screen to a clerk and negotiate a better price at the bricks-and-mortar store.
Clearly, it is incumbent on successful companies to find ways to make their products and services as proprietary as possible for as long as possible. Fortunately, there are a handful of strategies that put the brakes on the downhill descent to Zero-Land.
Niche Expertise
Whether you call it blue ocean strategy, creating a category of your own or merely specialization, people tend to accord more credibility and pay more for the products and services of niche players whose specialization functions as an insurance policy for the buyer. Generalists, be forewarned: you have a greater chance of getting commoditized and sucked into the race to the bottom.
Bundling
Creatively bundling multiple services, including those of another company as a form of partnership, can help make it harder for the customer to view the individual components as commodities. If increased value is truly delivered by such bundling, everyone wins. It can be as big as Comcast’s Triple Play or as simple as a spa package that includes dinner for two and a box of Godiva chocolates.
Customer Service
As poorly led companies race each other to the bottom, the first thing to go is customer service. Thankfully, there are businesses that still understand that customer service is an investment with big dividends. From big companies like Apple and Nordstrom to small local shops that really know their customers, the survivors of the recent recession—companies still running a decent profit margin—tend to be the customer service leaders of their respective industries.
Creativity
This is the ultimate non-commodity. Whether it’s originality of product design, innovative service offerings or the creativity found in marketing efforts like the ones we produce for our clients, doing something new and better is always the path to success. Creativity is perhaps the best defense against the race to the bottom. It sets a company apart from competitors. It sets one marketing effort over and above all the others clamoring for the audience’s attention.
It has been interesting to observe how, in our industry, website development, video production, and other artistic disciplines that once commanded high prices as black-box specializations possessed by the few, have now become the provenance of the many. Nearly every art form has been democratized by newer, faster and cheaper technology. This raises the bar on creativity as the key differentiator for our business and everyone else’s.
We’re fortunate to work with a number of visionary companies who understand this. They have creatively differentiated their services and products, and then allowed us to do the same with their marketing. That’s why they tend to lead their industries not only in innovation but in profitability as well.
The lesson? Commit to creativity and you have a good chance of letting someone else win that race to the bottom.