Commodities and ICT viewpoint

Continuation from business models blog text...

I was in energy business round ten years ago (1996-2001) and large share of the time I spent in electricity business - on product level electricity contracts (including early launches of wind energy which today seems to be rather high flying business area), solar power panels, smart home applications, etc. Majority of time was anyway spent around one idea - how to differentiate electricity product: is it possible, should you differentiate not the product but the customer experience, could you change your market/brand position from this commodity corner?

Let's shortly dive into this - why electricity is a commodity and later summarizing what is a commodity? First from consumer angle. On technical level electricity is just expected to be "flowing in" to your home, transmitted by your power company. If you change your supplier nothing changes on product level - it is transmitted to your home and you can keep on using your applications. So on pure technical level product level is impossible to differentiate no matter how electricity is produced: wind, hydro, nuclear, fossils. Identical flow of electricity keeps transmitted. Then one can consider price differentiation with different kind pricing options... hmm sounds like a commodity when pricing is only option.

Then one can try to add service elements. Whether those have importance or not depends on mind share: How much mind share you get from customers per day, per week, per month or per year? Does the associated mind share have emotions involved, hopefully positive ones? Does electricity and related services have high interest levels? Based on my experiences electricity just doesn't score very highly on any of these questions. You just expect reliable flow of electricity (and that has nothing to with electricity but transmission which is a monopoly business) and prices which do not shake too much your household living expenses.

With commercial customers it is slightly different because in energy intensive businesses price of electricity plays a big role which needs to be managed. In these arena power companies have done great work when price risk associated risk management services were introduced in the 90's. But for majority of business operations and decision makers it has anyway very little relevance.

To me the most important element of commodity business is customers' related mind share within the category - time based, interest level based, emotions based. When objectively scoring your own business and when the answers are more or less closer to "low than high" you have a commodity or future commodity business in your hands. From one angle I think this is really unfair in case business is a very high technology business which requires continuous R&D and innovations to stay competitive and yet still one cannot get any decent mind share from customers. Only what customers expect is reliability, peace of mind and no hassle & surprises in customer care or in bills that they can keep on focusing on things which matter more for them. Unfortunately this applies to both consumers and commercial customers.

ICT sector holds many categories which are or in the process becoming commodities - from the mind share perspective. Product differentiation plays a much bigger role than in energy business but and one more BUT it doesn't save them from commodity corner and customers' price oriented decision making.

Let's test this? How much time you spend per day or per week thinking about your home computer, printer, broadband contract, mobile phone contract, internet security, your mobile phone, etc. Most likely you will just expect that they continue to operate as they should and your mind share increases only at the time of troubles. Then compare this time and related emotions (time x emotions) with the time and emotions you are thinking about your hobbies (golfing vs. laptop), your children, your what ever which has high importance to you. Unless one of ICT related product or service is your passion the time difference should be remarkable. iPhone has escaped this trap because it has integrated product to be part of something bigger and relevant for consumers (you customize content based on your own interests) with seamless and easy to understand user experience in all channels and applications.

The internet time we are living makes things even worse. The number of available product/service options and related knowledge is overwhelming. In the B2B arena look at the number of available CRM software, web store platforms, sourcing platforms, data analytics tools, RFID applications, office hardware, etc. Some of these hold higher mind share among customers but the available options with price and product attribute centric marketing drive them towards commodity corner.

To me the focus should be in usage value not product attributes. I admit this controversial because in many cases usage value is decided with the factor "we need something which does not interrupt our core business operations" - indicating mind share for the category. If this is the case it also creates an opportunity: to broaden the offering or develop solutions which capture even bigger share of customer's business... "please take care of these not so important operations as long as we can save time, effort and money" Applies to consumers as well.

Being a commodity is not necessarily a bad thing. It just changes the game from being product centric to be experience & solutions centric. To have a chance to be successful in experience & solutions centric there is only one thing to overcome - you need to think like your customers and build your business around them. But hey not all customers, just your target customers. And then manage your customer base.