Hero Image

The Trap of Product Commoditization

There’s a trap most customers fall into and it’s the result of many years of companies using marketinesque language. It’s the Trap of Product Commoditization. What is it about? It’s when you pick a product based on its brochure features, among many other products that are apparently the same. So you might make your choice based on price or any other economical factor (Discounts perhaps? Free professional services the entire year? Free additional licenses?)

The definition of Commodity (straight from Investopedia, Key Takeaways section) it’s that “A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type.”

This becomes a problem when we start using this definition as an analogy for purchasing goods (whether digital or physical) that aren’t uniformly produced. These goods tend to be halfway through the value chain or these are already pre-processed in some way.

Therefore, the decision-making process of a customer ends up being like this: “Product A includes X, Y, Z features more than Product B, so Product A not only is better but also covers more ground for the same buck.” and that often ends up being the wrong choice. A fallacious non sequitur that goes against the customer’s best interest.

There are prospective costs to this decision not foreseen by choosing the cheapest. “Cheapest” in this context doesn’t necessarily mean the one that has the lowest total cost in the invoice but for the benefit-cost ratio the one that has more features.

The pitfall here is that while “benefit-cost ratio” is a great concept, customers confuse “benefits” with “product features performance”. Not because Product A includes X Feature, automatically X Feature is going to be great.

It also happens that customers attach the company’s reputation to all the product portfolio, but only a small subset of these products are great. Usually, this is the Achilles’ Heel of the companies with an expansion strategy based on acquisitions, by endeavoring themselves into unknown markets by acquisitions of the incumbents. Instead of adopting the acquiree’s wisdom, it ends up being backward: the acquirer’s forcing their way into the acquiree’s, thus killing the proficiency of the just-acquired asset.

I have one concrete example of Product Commoditization right here in my pocket, which is: Anti-malware Software. If you think that “good enough” education is “good enough” for Internet Surfing, you’re overexposing yourself. Maybe your OS ships with some protection, and you might think that’s enough. Why bother with something specialized? The problem with protection like this is that it’s developed by a company that doesn’t dedicate its entire livelihood to the very software you’re adopting (Does your operating system company will become bankrupt if their anti-malware software suddenly becomes discontinued?), but that’s a topic for another post.

Don’t misunderstand me, protection is always needed, but purchase it from a vendor that specializes in it. How would you make that purchase? There are a few questions that can help you about making an informed decision like this:

  • Do you have a clear requirement for software like this in your company? Maybe a use case you need to be able to execute?
  • Do you know how to cut through sales-y language?
  • How do these features in the brochure translate into tangible results for my company? (e.g. more money, more throughput, etc.)

You can request your consultancy company to help you at defining the tool needed for achieving the objective (base requirement), but always be crystal clear of the business objective. If you don’t hold tight to your desired business objective, you might end up with software you don’t need, or at least you won’t be able to extract the most value from and you’ll be paying for it if not with money, with valuable time. From my understanding, time is the most important asset we have to execute corporate strategy. You can become bankrupt on time alone.

Then, how do I know when I’m facing the Trap of Product Commoditization? There are some red flags to look out for:

  • When you find yourself purchasing a product or service without having tested it achieves your desired business objective.
  • When you purchase a product or service based solely on the Sales Representative claims.
  • When you intend to purchase a product or service categorizing the products into the same bucket as if the functionality was an exact match. Let me burst the bubble: It isn’t.

There’s no shortage of examples like this:

  • Two competing data compression software products where don't even use the same compression algorithm and both claim their compression is the absolute best.
  • Competing anti-malware software where each one claims their protection is the most complete. Even if each one of these had the most features, how can you be sure these features are the very best you can have? “Real-time zero-day protection” is unclear enough to raise any red flags to me.
  • Asset vulnerability scanners that claim the most detection for known software, yet don’t have fuzzer capabilities to detect new ones. Therefore you cannot use these vulnerability scanners for in-house developed software.
  • SIEMs that include other subpar FOSS products unrelated to the main feature (i.e. security events correlation).
  • Video Conference software that happens to be cheaper, that delivers substandard video quality.

Outside of the software world, there are many examples of Product Commoditization as well. One that is great for this topic is wine bottle purchasing. Would you just buy any wine or do you have a specific wine you like most? The same applies to watches, sedan cars, and even books.

All watches tell time, all sedan cars have 4 wheels and transport you anywhere and all books have text, but you’d never oversimplify their purpose in your life, given the context you defined. In short words, you’d not just buy any. Therefore, why oversimplify a software purchase then? This inconsistent behavior ends up being negative towards our results in the future.

Better customers, customers that make informed thorough decisions like this will drive better companies in the global economy overall. It raises the standard for the net benefit of society as a whole.

Until next time. Let me know your thoughts below!

blog comments powered by Disqus

Other Related Posts:

Gall’s Law and How I Ignored It

This is one of these entrepreneurial pitfalls that, once you come across to realize you have been doing it wrong all this time, the business perspective of your ideas gets shaken like a 9.0 Richter earthquake. Such an incredible realization could only come from the simplicity of business processes and value-adding approach to work.

28th Aug 2021

Diversity of Knowledge is Key

“People would do better if they knew better.” -Jim Rohn

Let’s imagine for a moment you haven’t yet figured out in life your professional inclinations. Wouldn't it be valuable if you knew since you were a child, what you exactly needed to achieve your dreams?

I have no children myself, but I highly recommend that parents expose their children to different activities or introduction to professions and let them explore something they might enjoy later in life. They will thank you later, I’ll guarantee that.

23rd May 2021