No Such Thing as a Commodity
If I were allowed to be business czar for one minute and were granted one wish, I know exactly what I would do. I would expunge the word commodity from the businessperson's language. I detest it!
Stew Leonard runs a store in Norwalk, Conn. His products are mundane: chicken, eggs, cheese, bakery products. But it's not just another dairy store. With only one location, Stew does upward of $75 million in business. His sales per square foot run $2,500, about seven times the grocery industry average.
Stew models his store after the ideas of his long-time idol, Walt Disney. The store, in fact, has been called the "Disneyland of dairy stores." You can watch the "world's freshest milk" being processed before your eyes. There's a petting zoo for kids and a mechanical chicken, "the world's fastest egg layer."
It has become a store custom to display pictures of Stew's colorful shopping bags. Six thousand photographs on the walls show customers holding those bags. One customer is under the sea, another at the Great Wall of China. Stew has turned the dairy store into entertainment and a profit bonanza as well.
Stew Leonard is the top customer for East Coast chicken magnate Frank Perdue. Frank and Perdue Farms have made fresh chicken into an $800 million business, with margins 1,000 percent above the industry average, and market shares in urban areas such as New York, Boston, and Baltimore that typically run in the mid-50s. Frank says it doesn't matter whether you're peddling fryers or Ferraris, there's simply no limit to the amount of quality you can add to any product or service. His chickens are fed better and look better. He designed "the world's biggest blow drier" to fluff up the hairs on chicken wings so that they can be burned off before store delivery. The reason is that Frank thinks nothing is more distasteful than the light hairs that normally appear on barbecued chicken wings.
If you find a problem with a Perdue chicken and tell Frank about it, you will be bowled over by the executive attention that comes your way. Chicken is not just chicken at Perdue Farms.
General Electric was forced by a depressed home building market to lay off thousands of people from its Louisville, Ky., appliance-making plants during the past recession. Just a few hundred miles away, in Newton, Iowa, the $600 million Maytag Company reported record profits and record sales during the same recession. The product would seem to be the same—washers. Yet Maytag can charge a 30 percent premium and still keep its plants running in down markets. The machine's motor isn't exotic. It was patented in 1935. It has but one significant trait: It rarely breaks down, thus the ad for lonely Maytag repairmen.
I recently got into a discussion about commodities with an engineer. He said his product was "becoming a commodity." Before my next visit with him, I did a little market research. I purchased a four-roll package of one-ply generic toilet paper—an "obvious commodity"—at a cooperative grocery store. The
price tag read 79 cents. Proctor & Gamble's Charmin one-ply toilet paper, found in a nearby 7-11 store, had a $1.99 ticket. Both might appear to be the same product, "mere" one-ply toilet paper. Not so! The combination of Proctor & Gamble's 150-year dedication to consumer quality and 7-11's convenience led to $1.20 worth of value added onto the four-roll packet that cost a quarter to produce.
We just don't need to have such a thing as a commodity. Proctor & Gamble, 7-11, Perdue Farms, Maytag, and Stew Leonard prove it. Harvard Business School's long-time marketing guru, Ted Levitt, says there is only one possible exception: "That exception is in the minds of those who express such a perception." In more practical terms, a friend who runs a retailing business in a tough forest products market says, "If you don't think your product is any different from or better than your competitors', then you can be sure it won't be. Somehow or other, you'll find a way to make it no better."
The closer the product comes to being a true undifferentiable commodity (e.g., oil, timber), the harder one must struggle. Stew Leonard has to struggle all the time, as does Frank Perdue. A DuPont specialty chemical salesman says the whole game is to find some edge somewhere. "Paint your gas canisters more attractively than the next guy, provide a slightly faster service response, work on phone courtesy in the order department and form simplification in the receivable group." The evidence is crystal clear. Over time, the customer will recognize the difference and will reward you with more business.
Time and again, I listen to businesspersons lamenting that "margins are eroding." We have just one weapon, they invariably say, cut the costs to fight back. Cutting the costs often does make sense, but the real winning formula, from steel to forest products to chocolate chip cookies, is finding a way to add value, finding a way to make your product a bit different.
There need not be such a thing as a commodity. A tie tack worn by a regional sales manager for John Deere, the farm equipment manufacturer, says it so well. Vertically, it reads "D-E-E-R-E"; horizontally, it reads "S-O-Q-N-0-P." When I asked what the latter meant, he was dismayed that I didn't know. "Obviously," he replied, "'Sell on Quality, Not on Price.'" Amen!
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