George Brown, Jr., cofounder of Blue Canyon Partners Inc.

Too Much of a Good Thing? Avoid the Commodity Trap

May 17, 2013
"In most cases, there was at one time a well-argued motivation for the additional authorizations, but it was one that failed to forecast the unintended consequences of transforming a differentiated product into a commodity with purchases driven by price," said George Brown, Jr., cofounder of Blue Canyon Partners Inc.

Although Mick Jagger once advised that “anything worth doing is worth overdoing,” most of us can recall numerous examples involving too much of a good thing. The famous Alka-Seltzer commercial line “I can’t believe I ate the whole thing” comes to mind, as does the question “You think you might be overdoing it, Dad?” asked of Chevy Chase as he was decorating his house in Christmas Vacation. 

The question emerged recently for a firm that went to market through a series of distributor relationships. This firm had seen a slow and steady erosion of its market share for its mainstream product line, even though it had continued to respond to well-documented pricing challenges supplied by its distributors. If the trend continued, it would not be long until this business would dip below the breakeven point.

What was mystifying about this situation was that the research the firm had shown a high level of satisfaction on the part of its end customers with their product. Customer assessments of performance and reliability were high, and many even gave praise for the features that were offered.

This came as no surprise to the engineers in the product development group or to the manufacturing team, both of which had a strong sense of pride in building strong end customer relationships and listening to their priorities. The former group had even won awards for design excellence.

Unfortunately, while this firm had done a great job in listening to end customers regarding their product line and technology, they failed to recognize a reality that the end customers had fully learned – the product was available everywhere, including through some big box retailers with transparent pricing showcased in Sunday newspaper flyers. Any end customer that wanted to do so could put the squeeze on their distributor to get a price break, showing them the low prices they could get elsewhere, going to another nearby distributor or retailer if there was resistance.

As a result of this situation, distributors were becoming less and less motivated to support this product. Proactive selling efforts were becoming fewer and fewer, and customer requests for pre- and post-sale support were increasingly met with groans rather than enthusiasm.

In terms of authorizations and product placements across sales channels, this manufacturer was suffering the problems of too much of a good thing.  Distributors were slowly but surely discontinuing the services and sales efforts that were critical to this manufacturer’s success because the product was not a profitable one for them, especially when end customers wanted them to provide services associated with it.

Excessive Authorizations

Many of us have encountered previous examples of the problems of excessive authorizations and the subsequent loss of interest by distributors and other channel partners. My own experiences span a spectrum of products and vertical industries across business-to-business markets.

In most cases, there was at one time a well-argued motivation for the additional authorizations, but it was one that failed to forecast the unintended consequences of transforming a differentiated product into a commodity with purchases driven by price.

This issue is a particularly timely one today for many manufacturers as they make decisions on channel strategy. In industry after industry, a top-of-mind topic among manufacturers and distributors alike is the emergence of strong new business-to-business e-commerce channels, with firms like Amazon Supply and Google Shopping for Suppliers joining the ranks of the original b-to-b e-channels and those established by the more traditional bricks-and-mortar distributor and retail organizations. Many manufacturers are making the decision to offer their products through these newly emerging e-channels.

In a recent project, I had the opportunity to interview purchasing managers that had made the switch to one of these new e-channel players.  The unexpected message that I heard was that while their original interest was motivated by attractive pricing, their comments included many phrases like “a superior buying experience” and “better logistics than what I was getting before.”

In many ways, that’s not surprising, if we reflect on our experience as consumers shopping via the Internet with some of these same firms’ b-to-c platforms. For many products and on many purchase occasions, it is probably inevitable that some business buyers will increasingly gravitate to these channels. Superior pricing and a favorable customer buying experience is a tough combination to beat.

But in many other instances in which the business customer values the services that surround the product – and where that overall “solutions package” has been critical to success – it will become increasingly important that the manufacturer’s distributors are motivated to provide services and to invest in best-in-class business systems, ones that yield a positive customer experience spanning all elements of the “solution.” That won’t happen for firms like the one described earlier, that had gone down the path of “too much of a good thing,” resulting in distributor disinterest and disinvestment. 

New channels will continue to evolve and business customers will increasingly experiment with them. That can be taken as a given. There are some product lines and market segments that will inevitably favor these new channels. But there are other situations in which manufacturers must motivate and protect the ability of its distributors to deliver high-value services important to their end customers.

Deliver Value to Customers

It will be critical to recognize the importance of avoiding the pains of “too much of a good thing” for the manufacturers and their distributors that have built their businesses on a value proposition that involves both products and surrounding services as well as supportive business systems.

These teams can continue to win and to enjoy the rewards of delivering value to end customers, but doing so will require that they reexamine their relationship and ensure that they are ready to raise the bar and show customers a sharp distinction from the emerging e-channels.  

Manufacturers and distributors must work together to insure that both parties continue to find the relationship attractive from a bottom-line perspective and that the foundations and investments are in place to continue to deliver critical highly-valued services and maintain strong customer relationships. They often must raise the bar on the elements of their offer that have helped them to win in the past, especially in the face of competitors that specialize in being “easy to do business with” along multiple dimensions.

Otherwise, the likely outcome is one in which too much of a good thing will translate into a future that involves undifferentiated offerings and purchases driven primarily by price.

George F. Brown, Jr. is the cofounder of Blue Canyon Partners Inc., a consulting firm working with leading companies on growth strategy. He is the coauthor of CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs, published by Greenleaf Book Group Press of Austin, TX. He has published frequently on topics relating to strategy in business markets, including articles in IndustryWeek, Industrial Distribution, Chief Executive, Business Excellence, Employment Relations Today, iP Frontline, Industrial Engineer, Industry Today and many others.

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