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Archive for the “Commoditization” Category

In this fast paced world, I am increasingly sensitive to the lurking, insidious danger of creeping commoditization for any product or service.

The President of my firm, Corporate Rain, has been kicking my ass lately about not moving quickly enough with the times. He’s right. I know I am not alone in wanting to rest on my laurels and assumptions of the status quo ante, but I’m realizing that long-term reputation and past successes are less relevant (though still important) in a rapidly changing, ROI intensive, technology-driven, chaotic, flat earth business climate.

Even though mostly I’ve had the good sense to accept change despite myself, I don’t like change. I don’t like the unknown. I want to reject it like a small child having a foot stomping tantrum. But for the healthy entrepreneur, just as for democracy, the price of ongoing success (or freedom) is eternal vigilance.

I finished Howard Schultz‘ memoir, Onward, last week. One of my favorite passages in his book is his very useful discussion of the dangers of commoditization.

Schultz reports that, in the spring of 2007, Starbucks’ stock kept bouncing to new highs and there was intense pressure from Wall Street to continue increasing profitability and velocity of sales. At one point Starbucks was opening as many as six new stores per week. This growth was taking a toll on quality control and service.

But Starbucks also was adding new items to the menu, which, while highly profitable, filled Schultz with foreboding. He felt his firm was increasing profits at the cost of its identity and its soul. For example, Starbucks had introduced breakfast sandwiches which often left the smell of burnt cheese in the air, rather than the signature aroma of roasted coffee beans. He felt Starbucks, in its rush to coruscating profit, was losing its essence. He states, “…negative incrementalization, like one thread after another pulling at our seams, could be the company’s undoing.” (p. 38) He did not want Starbucks to become more like McDonald’s. He recognized the threat of long-term brand dilution and commoditization. Accepting an initial loss of company revenue and internal company distress, he set about uncommoditizing Starbucks and restoring Starbucks traditional trope of quality and specialness from top to bottom. He sought to restore Starbucks soul, no matter the price. He was right.

Increasingly, I believe, commoditization is a real bete noire for business. You can’t sell everything, even if it is temporarily profitable. In a large sense, if you sell everything you may ultimately sell nothing. Long-term business health requires a constant honing of the identity and essence of any firm. With pressure to meet profitability and payroll goals, it is so easy to take on business that blurs your image. Certainly sales must be based on clear differentiation.

Otherwise you become, to paraphrase Winston Churchill, a pudding without a theme.

Thank you, Winston.

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