Chain of Thought

The Logistician's Brain: Protection from Commoditization

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It's amazing how quickly innovations become commodities. The material handling equipment industry offers some of the best examples of that phenomenon. Remember years ago when voice-directed picking was introduced? Solutions were hardware-centric. You had to buy a box to get the voice. Then companies like Vocollect started offering voice-directed workflow solution that could be supported on all major handheld computers—making the hardware a commodity.

Lift truck manufacturers are constantly struggling with the idea that their products are all alike. And many customers feel as long as it has forks, a mast and a counterweight, a lift truck is a lift truck. OEMs and their distributors fight that perception with constant innovation and service. So far their efforts have been effective. Most major lift truck buyers are still brand-savvy and have their favorites, although brands like Heli from China are gaining traction in American markets by selling a combination of that basic fork/mast/counterweight package at a low price without compromising quality.

The latest innovations fighting hard to stay out of the commodity bin are global positioning devices (GPS). In the consumer market it looks like a losing battle, as major manufacturers like TomTom have revised their market standings due to weakening sales. Their problem is that consumers are buying smartphones and cars with GPS built in—much as warehouse workers are putting their own smartphones and lift trucks to work for various inventory control and asset tracking apps.

How can technology providers escape the commoditization of their once ground-breaking innovations? I just saw a whitepaper from Atenga titled "6 Tips to De-Commoditization.” The author cites Starbucks as the perfect example of a company that overcame pricing pressures and decommoditized the coffee marketplace. It replaced the fifty-cent cup of caffeine with a $4.95 experience.

The author's test for whether your product has passed into the commodity realm is if your management team has failed to establish differentiators meaningful in your marketplace and your company is forced to cut prices to stay competitive.

The paper lists the following strategies to differentiate a product from cheaper competitors:

1. Decide to say no to customer pricing pressure. Define your marketplace by quality and other differentiators.

2. Identify the right segment of your marketplace. McKinsey and Company studied the 100 largest corporations in America and found that the decision of where to compete accounted for 80% of their differences in growth. Finding the right segment in which to compete requires substantial research, followed by committing resources to product development, partnering strategies, marketing, go-to-market strategies and sales efforts.

3. Find the right price and stick to it. If the marketplace starts declining and the technology is superseded, these authors suggest you may be able to eventually resume premium pricing if there are complex systems that still rely on older technology like yours and replacement is too expensive (the author cites vacuum tubes and vintage data storage systems for mainframe computers as examples).

4. Drive Customer Value by finding new ways to meet service needs.

5. Bundle your products to solve specific customer problems.

6. Unbundle products or services to offer a lower-price alternative for specific needs.

The author summarizes that commoditization is more often a perception than a reality, and all a company needs are the structures and the sales skills to resist downward pricing pressures.

If you're in business you're probably on both the giving and receiving ends of the pricing pressure game, so it's probably a good idea for you to study the dynamics of commoditization. In fact, here's a fun exercise you might want to try. Let's take another look at asset tracking technology. Although it appears that it's rapidly being commoditized, are there ways you can devise to turn it into a premium product or service? If so, I have a contest for you.

Rather, Paul Krupin and Erik Feder do. They're publicists representing a group of companies including Deloitte, Deutsche Telecom, HYVE and The RWTH-TIM Research Group. These companies are sponsoring a contest with prizes worth over $10,000 for the “wildest and best ideas for tracking anything – people, animals or objects of any size.”

It sounds like they're in the decommoditization process themselves and are hoping to tap the creative juices of the vast B2B marketplace.

The goal of this contest is to come up with new state-of-the-art machine-to-machine (M2M) communications solutions. Portable GPS units are already used to locate trucks on highways in real time, and locate people who have been lost at sea or in an avalanche. Location based devices in cell phones can be tracked on mobile networks.

Your mission, if you choose to accept it, is to come up with exciting and innovative new ways to use this tracking technology.

Here are a few examples:

The Weather Forecast on Toast idea: Your toaster receives updated weather information for its current location via m2m or WLAN and burns today's weather forecast via icon into your toast.

The Find the Doctor Next Door idea: M2M technology locates the nearest doctor/nurse/first aid medic in an emergency.

The Feed my Cat idea: This app would allow a pet owner who is away from home to trigger an automatic feeder by phone to provide food and water to their cat. A built in camera would let them visually check up on the process.

Proposals for this “Ideabird Contest” can be submitted until April 10th in any of eleven different categories from home & family, animals, outdoor & sports, fun & play, healthcare & well-being, safety & security, production & logistics, to nature & environment and more. Ideas will be judged by the degree of novelty, grade of freakiness, and usability.

Winners will be selected to share cash and non-cash prizes amounting to a total of $10,000. The top three idea candidates will also be invited and flown to Dusseldorf, Germany to participate in an awards ceremony where they will present and discuss their ideas with a team of top managers from the contest partner organizations and members of the expert team. Winners and a group of top contributors will also be invited to participate in an exclusive innovation workshop in Aachen, Germany on May 10, 2012.

The ideas will be posted online where people can review and comment openly. Candidates get the opportunity to receive feedback and exposure from people all over the world.

To submit ideas and for more information visit: www.ideabird.com

Knowing the MH&L audience, the production and logistics category seems like a no-brainer. But I'm sure the brains behind this contest are hoping to find yours fully engaged, since they're taking a rather creative route to get to it. Beats a GPS, I guess.

Discuss this Blog Entry 1

on Oct 28, 2014

This is really great.!!. I’ll definitely be back for updates. I am impressed by the information that you have on this blog. It shows how well you understand this subject. ArcheAge Gold

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During his career Dave Blanchard has led the editorial management of many of Penton Media’s best-known brands, including the company’s flagship title, IndustryWeek, as well as Logistics...
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