Tuesday, November 07, 2023

If You're a Commodity, It's Your Fault - and It's Okay

 The other day, I heard someone say that IT support (managed services specifically) had become a commodity. I know what they meant, but basically everything about that statement is wrong.

First, the actual definition of a commodity is a basic, useful thing that can be bought or sold. By basic, we mean that it's not made of something else, but it can be used to create something else. Copper is a commodity; a copper kettle is not.

Your IT services (especially managed services) are made up of a lot of complex elements and services. So the concept of a commodity is not a good fit.

Second, people use this term colloquially to mean that something is plentiful and cheap in the market. The intention is to say that IT Services is a crowded market and therefore you have to compete on price. To that, I simply remind you that eggs and oil are commodities. Commodities can be cheap or expensive.

There are two key elements to the question of price. First, what's built into the service you sell? Is it really plentiful and cheap? I'm guessing NO. I'm guessing that your service is a sophisticated collection of services selected with care, and designed by you to work well together to provide maximum value while maintaining security.

Second, price is rarely the first consideration of the buyer. Time and time again, research shows that price is the third or fourth most important element in making a buying decision. Price is important. Price matters. But price is not the deciding factor!

Price appears more important than it is because prospects think they understand it. They know they don't understand technology and they know they don't understand the services you provide. So they ask about price because they can compare two things they don't understand based on price.

If the client is deciding based on price, it simply means that you have failed to help them understand the value of your services. You have not differentiated yourself from the competition.

I always remind people to scan the prospect's parking lot before they go into an appointment. And look for a key fob on their desk. If they're driving a Nissan Versa (the cheapest new car you can buy today at $17,000), then they might be price sensitive. If they drive an average car, they probably paid about $50,000 for it. If they drive a higher-end truck, they paid at least $75,000.

What does one year of your service cost them? For small businesses, it's rarely less than the cost of that average, mid-size car.

My point is simply this: If clients find value in what you sell, they will buy it. If they can't see the value, they'll focus on the price. Whether they see the value or not is totally up to you. Here's a few things to consider:

  • How do you define the value of your service offerings? How consistent are you about this?
  • How often do you practice explaining the value of your offering? You don't get better at things you don't put attention on.

No service is a commodity unless and until you make the conscious decision to compete on price. Never compete on price. Unless you are a multi-billion-dollar corporation with the ability to lose money for a decade and still stay in business, you should never compete on price.

Today is a great environment in which to be a very expensive and very busy IT Service Provider. If you're not getting your share, I assure you that the reason is not price. It's more likely to be your sales process, or lack thereof.

If you want to define yourself as a commodity, consider yourself oil when people are paying $5 per gallon at the pump. Be an expensive commodity. That's okay.

But in the bigger picture, consider your service as something built from a lot of very important parts. Charge top price for that and let someone else compete for the bottom of the market.

Feedback welcome.


No comments:

Post a Comment

Feedback Welcome

Please note, however, that spam will be deleted, as will abusive posts.

Disagreements welcome!