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Lost in the Crowd? Six Ways to Avoid the Commodity Death Spiral
By Dan Adams, President, Advanced Industrial Marketing, Inc., Cuyahoga Falls, OH
you think fresh, daring, and original? Or do you think, Hmmm, now where have I seen this before? If your widgets look suspiciously like your competitor’s widgets, or theirs look like yours, or you have innovative ideas but some- how you never get them to market in time, look out; you’re not turning out new products. Instead, you’re produc- ing commodities —and that is very bad for business. Your customers will notice that
T
your products seem interchangeable with those of your competitors, and they will pressure you for lower prices.
Budget Expectations So what should you plan for as
you go over the company’s budget? Should you cheerfully tell your boss to expect more profit declines? I’m guessing that this would not be a good answer. To make the most of
ake a good hard look at your new product development strategies. What words come to mind? Do
2012, you’ll have to reduce costs. Where will you cut? Unfortunately, it will probably have to be in long-term areas like R&D or marketing. If any of this rings true for you,
your company is firmly strapped into what we call the “commodity death spiral.” It’s a business- busting de- cline that begins with companies cre- ating me-too products that lead to budget cuts that mean they’ll have even less new product development capability — especially for high-im- pact new products. The farther you spiral down, the
smaller your business will get. You’ll have less profits and even fewer op- tions. Sure, your business might sur- vive, but if it does, it will be on “life support.” If the thought of the “commodity
death spiral” has you panicking, don’t. There are solutions that will help you behave and think differently when it comes to new product development. Here are some tips that will help you
avoid the commodity death spiral.
Take ownership of your future. There are many forces pulling your products toward commoditization: competitors trying to imitate your products, purchasing agents trying to standardize your products, new tech- nologies trying to obsolete your prod- ucts; the list could go on and on. Resist them. Bolster your resolve to forge ahead with a true innovation strate- gy.If you want to move away from commodity toward specialty products, the sobering truth is you will get no help from the outside. Forces pulling a supplier toward “specialty” come from the supplier, or they don’t come at all.
Running to Stay in Place
Measure your progress. Is your business moving down the commodi- ty death spiral or reversing direc- tion? Tracking your New Product Vi- tality Index over time can provide in- sight. This is the percentage of your total sales from “new” products — typically introduced in the last three to five years. But don’t forget a simpler met-
ric: average selling price. This is how customers “vote” on the value your products deliver relative to the next best alternatives. You can fire out new products at Gatling gun speed, but if this metric keeps dropping, you’re moving toward the big “C”.
Change your time horizon. In a 1972 Harvard Business Review arti- cle, Richard Vancil complained that long-term product development ex- penses are buried within short-term operating plans, allowing short-sight- ed business leaders to “raid” funds needed for their future. This problem still exists and must be dealt with. To combat it, consider putting all your budget dollars in either a short-term bucket or a long-term bucket. And make sure someone is watching the long-term bucket. Work on high-impact, high-inno-
vation products. Some companies play it safe and work on only “low-risk” me- too and incremental new products. But, in the commodity death spiral, this strategy is the beginning of the end. Those who sacrifice innovation on the altar of safety end up losing both. While each me-too and incremental project may have low risks, a business built only on “low-risk” projects is ac- tually at great risk. So make sure your new product portfolio has a healthy proportion of high-impact new prod- ucts — products that will deliver sig- nificant value to your customers.
Fresh Air Needed
Get out more. It will help you mini- mize risk. While it’s risky to incre- mentalize, it’s also dangerous to in-
vest in “great-hope” projects: high- stakes gambles with poorer odds than management realizes. Such projects will pull in lots of manpower, funding, and management attention. But after two or three years, they of- ten end with a whimper, typically from a fatal flaw that should have been discovered much earlier. So if there’s too much risk with
both me-too and great-hope projects, what’s the answer? I believe we need to “get out more”. We need to spend much more time in our customers’ world to reduce our commercial risk. And we need to reduce our technical risk through open innovation by un- covering and introducing technolo- gies from outside our companies.
Questioning Customers
Directly engage your customers. In its landmark 2007 study, The Global Innovation 1000, Booz Allen Hamilton found that companies that directly engage customers in their in- novation processes had profit growth three times faster than those using “indirect customer insight.” Here’s how direct engagement
increases as you move through six important levels:
Level 1: Our Conference Room. Deciding what customers want around your conference room table. Level 2: Ask Our Experts. Polling your sales force, tech service, and others to determine customer needs. Level 3: Customer Survey. Using surveys and polls to ask customers what they want. Level 4: Qualitative VOC Inter- views. Sending interview teams to hear the voice of the customer. Level 5: Quantitative VOC Inter- views. Adding numerical feedback to drive out bias and wishful thinking. Level 6: B2B VOC Interviews. B2B-optimized methods to fully en- gage knowledgeable B2B customers.
No company has ever grown by
copying its competition or by failing to innovate when its competition’s products began hitting a little too close to home. Me-too products and incremental steps in new product de- velopment will always lead to com- moditization. But you can avoid al- lowing your company to spiral into ir- relevance. Once you understand the very real, very profitable benefits of changing the way you innovate, nothing will hold you back. Contact:
www.newproductblue-
printing.com r
Editor’s note: This article has been excerpted from Dan Adams’ book, “New Product Blueprinting: The Handbook for B2B Organic Growth” (AIM Press, 2008, ISBN: 978-0-9801123-4-4.)
May/June, 2012
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