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Mon Sep 20 | 5 minute read
A commodified service or product is one that can ONLY compete on price, and competition will eventually drive the business’s revenue towards one-direction—down. Generally, almost every business faces the threat of becoming a commodity on a daily basis.
Premiumisation is the practice of establishing quality and uniqueness for a particular brand or business and in the process creating a premium product or service. When purchasing a premium product or service, price is not a factor in a client’s or customer’s decision. Premiumisation is the exact opposite of commodification.
A commodity is generic, it is nameless, it is only chosen for its low cost, on the other hand, a premium product or service is purchased BECAUSE it is high quality, regardless of price. To become a premium business, you need to become a brand, backed with a solid reputation. A brand takes some time to develop and can’t occur with any planning and forethought.
Business owners can do three things to defer the unavoidable powers of commodification and move toward Premiumisation.
1. Become A Brand. No one goes into Tiffany’s or The Apple store thinking about cost first, because they are powerful brands. These brands are valued because of their high quality and price doesn’t matter to the consumer. Differentiate yourself from the competition. Take a look at the marketplace, figure out the flaws and customer grievances, then do it better, faster or easier.
2. Innovate: Create a new item or service that better addresses consumer needs, even an update of a current/existing item, can one-up competitors and drive them to put resources into coordinating or exceeding the new specifications.
3. Segment The Marketplace, Find a Niche: A market, no matter how large, can be separated into numerous marketable segments. Decide which customers or clients do not want to work with, fire them. Many times price conscious clients or customers are time wasters, because they see you as a commodity that can be easily replaces. Premiumisation of your business will lose some market share but improve profitability, by bringing in higher paying clients and customers that value you. A business owner can concentrate fully on these people, leaving the others to their competitors.
When Starbucks was started, there was cheap coffee in every gas station. In fact, people gave it away all the time, but there are many market positions in the marketplace. At that point in time there was no branded premium coffee. This means that the coffee market was under served. Starbucks took advantage and today they are one of the most powerful brands in the world. Starbucks chose to go down the path of Premiumisation, they didn’t try to make coffee cheaper, but choose to make it MORE expensive and MORE premium. Follow this model to become a premium brand.