Real monopolies are rare. There is competition for everything. That does not mean most products or services are commodities. I have often heard executives say, “We sell commodities, and price is what matters.” They then set their pricing strategy around winning with low prices, but in reality anything can be made special. Is there anything more basic than water? It covers nearly 3/4 of the earth and the average person uses between 40 and 200 gallons each day, at a price of a fraction of a penny per gallon. However, water has become highly differentiated and the prices we pay for it vary widely. For example, I looked at some bottled water prices at Amazon.com (24 packs unless otherwise noted):
- Member’s Mark – $.05 per ounce when bought in bottles of 8 ounces
- Nestle Pure Life – $.012 per ounce
- Dasani – $.044 per ounce
- Poland Spring – $.032 per ounce by the liter
- Smart Water – $.035 per ounce in 6-packs of 1 liter each
- Fiji – $.053 per ounce
- Evian – $.062 per ounce
The most expensive brand is 5 times the price of the cheapest. And the 2nd most expensive is more than 4 times the price of the 2nd cheapest. Isn’t water a commodity? In some respects, water is a commodity, but these well-known brands have widely different prices. How can they succeed like that? Each brand communicates to their customers how their products are different. They sell the experience, cache and unique features of their water; and they sell at these prices at Amazon shoppers who are among the most price sensitive anywhere.
In a similar quick study, last winter I compared the prices of gasoline at gas stations in Palm Beach Gardens, FL. Once again, gasoline is often considered a commodity. If your car takes regular gas, any gas will work. However, in my study there was a 30% difference between the price of the cheapest and most expensive gas within a 3-mile radius. All of the stations had customers filling their tanks. Clearly the lower-priced stations view themselves as commodity sellers that must compete on price. The higher-priced sellers believe their customers make purchase decisions based on criteria other than price, such as location, convenience, in-out access, cleanliness and service.
Lipstick is another product often thought of as a commodity. It is a relatively straight forward mix of chemicals. Revlon does not think of their products as commodities, though. Charles Revson, the founder, once said. “When it leaves the factory it is lipstick. But, when it crosses the counter in the department store, it’s hope.” Their prices reflect the value of that hope.
It is important to all of us to think about what makes our businesses unique rather than simply assuming we are just like the rest of the crowd. As sales people, executives, and representatives of our companies, we need to communicate to our customers how we add value as a provider, how we add value as individuals, and how we are different from our competitors. If we treat our customers as special, follow up relentlessly, and they believe they are our most important customer, we can win in a crowded market. And when we do that, we have a much better opportunity to differentiate our prices and a much better opportunity to reach our goals.