Prices on Potash—a salt mineral used to fertilize crops, typically mined from deep within the earth—have dropped dramatically due to overproduction and reduced demand. Given these circumstances and that potash is a commodity, nothing much can be done to preserve its value. Or can it? One company from another minerals business challenged common assumptions about commodity pricing by using innovation to lessen the boom-bust cycle. Led by a new marketing director, the company recognized that customers would pay a premium under long-term contracts if options were made available for the minerals that competitors weren’t offering, such as different concentrations, forms (i.e. pellets and rods), and consistencies (i.e. granular form).
When selling a commodity product, increase prices and reduce price volatility by considering the following:
- Mindset: Don't get locked into the common commodity mindset that the market determines prices and you cannot control profits other than by a reduction of production costs.
- Change the Conversation: With better products that create improved value, you can change the conversation from price to value. Listen to customers, understand what they do, and look for ways to make their businesses better. Change the conversation from saving a few hundredths of a cent to how the customer can reduce costs or improve quality. Once you help customers succeed, they will want a deeper, longer-term relationship that moves you from being a vendor providing an undifferentiated product to a distinctive partner who delivers more value.
- Invest in Marketing: In a commodity business, operations run the show since cost reduction is paramount. That means marketing, if it exists at all, is given little power, influence, or resources. But with the right people, marketing can have a powerful impact in helping the organization understand the customer and develop customer-centric solutions. Invest in marketing and give it a significant role in all decisions.
- Culture Clash: The best marketing people are often at odds with the financial and production culture that typically dominates in businesses like automotive, high tech, telecom, and utilities that have high fixed assets and/or upfront R&D costs. Great marketers, excellent at empathy and listening, are both creative and practical when creating viable innovation for the business. They tend to be more open to new ideas or approaches and more tolerant of mistakes (their own and others). On the other hand, financial and operations managers tend to be very focused on getting the immediate tasks done as quickly and cheaply as possible. Mistakes and changes that disrupt the business are heavily penalized. Typically, operations and finance attempt to wring as much economic value as possible out of high fixed costs. And when finance and production dominate the corporate culture, frustration grows with how marketers think (“They don't understand what’s important and take us away from the bottom line.”), inadvertently leading to rejection of the value marketing brings. Preparing the leadership team to value marketing thinking and to give marketing input time to prove itself is critical to realizing the company’s full potential.
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