Price has gained incredible power in b-to-b markets, even before our daunting recession began.
The paramount challenge facing marketing is that cost reductions, better branding, expanded communications and even product innovation have lost their power to maintain and grow margins.
What sapped these powerful strategies' strength? The elements that accelerated commoditization's pace and strengthened its force are to blame.
The Internet demolished barriers to entry and made price comparisons and auctions relatively easy. A rapidly growing and strong business services sector helps companies copy competitors' offerings. Finally, disruptive innovation—finding a lower-cost way of performing a specific job—has become the flavor-of-the-day strategy. Excess capacity makes matters even worse.
Traditional marketing strategies can't offset these drivers. As a result, customers see offerings as essentially equivalent to at least one other competitor's offering. Price drives customer choice.
Is there a way out of commodity-market quicksand, where companies get so caught up in cost-cutting? The answer rests in business model strategy.
A business model answers core strategy questions that every leadership team must answer: Where will we compete (target markets and offerings)? What value promise will lead customers to choose our offerings? Why will competitors fail trying to copy it? And why will our exchanges be profitable?
Winning companies build business models anchored in advantages that enable them either to win profitably on price or to offer unique benefits customers deem worthy of price premiums. If you are not innovating your business model, even your new-to-market offerings are sinking towards commodity status.
What are the implications for b-to-b marketing?
First, the value promise must excite customers. It's about them, not you. Can you increase your customers' revenue? Lower their overall costs? Reduce their risks? Increase their productivity? Make them more flexible? Enhance their reputation or price? These are benefits that matter, not your quality or features.
Second, communicate the value promise first and individual products second. The latter are only important as proof of your value promise. IBM Corp.'s “Think Smart” campaign provides a brilliant example. Yes, we learn about traffic and energy solutions, but the overall promise of working with IBM is clear.
Third, don't forget internal communications. Employees down to the plant-floor level must know the value promise to align their efforts to deliver on it.
Finally, marketing must be at the strategy table, bringing market-based strategic insights for business model innovation.
Every industry has its Walmart, the lowest-cost competitor. If you can't be your industry's Walmart, avoid becoming its Sears/K-mart.
Kay Plantes is an MIT-trained economist, business strategy consultant and co-author of “Beyond Price: Differentiate Your Company in Ways That Really Matter” (Greenleaf Books, 2009). She can be reached at firstname.lastname@example.org.