Commodity Services And The Race To The Bottom
Everyone wants a good price. In fact, everyone wants the best price. It is seldom that someone wants to spend more than their neighbor or competition for a similar product or service. Have you ever felt like commodity services are really a race to the bottom?
Price Strategy
Many selling efforts consider the basic economics of price. Sell more at a lower price and we’ll get more money. Sometimes this may make sense.
Selling services has some differences when compared with selling raw materials or products. The value of the product is in the spec. Anything meeting spec may only come down to one thing, price.
Services have some differences. Businesses that treat services like raw materials or products, pushing vendors for the lowest price as compared to spec, may get less than they expected.
Race to the Bottom
When you are selling a service that is based purely on spec you may be selling commodity services. Yet your value will be judged on the expected quality.
It will need to meet spec which includes quality, but the quality of a service subjective.
This is even true for most jobs. When you negotiate a salary, it typically starts with spec. Ultimately though you will not only be evaluated compared with spec but your performance will be compared with price.
One of the challenges for the service provider is to apply enough margin to consistently exceed expectations.
While everyone is racing to the lowest price and trying to sell more, the intuitive path seems to include cutting operating costs to keep margins. Service quality often declines. Promises are broken.
Commodity Services
One trouble spot with services is that they often aren’t remembered for price. They are remembered for the feeling after the service.
The best lawyers, surgeons, and accountants may have to meet spec, but spec isn’t that relative to price. The service promise and the resulting expectations have more relevance.
If you were in trouble legally, would you hire the cheapest attorney? The spec may be, have the credentials to practice law. The promise is to keep you out of jail.
Here is a promise. The cheapest service may meet spec, but it will often be remembered as an inferior product.
A race to the bottom.
-DEG
Dennis E. Gilbert is a business consultant, speaker (CSPTM), and corporate trainer. He is a five-time author and the founder of Appreciative Strategies, LLC. His business focuses on positive human performance improvement solutions through Appreciative Strategies®. Reach him through his website at Dennis-Gilbert.com or by calling +1 646.546.5553.
