Competition in a Commodity Market

A discussion around the office recently dealt with the problem of finding new clients for a business which deals in what has become a commodity over the last few years. With the ease of long-distance communication and availability of low-cost labor overseas, the development of websites has become, to some extent, a commodity. Certain types of websites now have a standard value against which any company vying for such business must measure themselves.

  • Want a blog? We’ll use WordPress with a nice theme, $250 tops.
  • Need a more powerful CMS? How about Drupal for $750, basic installation, $2,500 when you add in full shopping cart functionality with Ubercart.
  • Photo gallery? It’s just a plugin, $50.

While this is not to say there is no value in hiring local, it does force the local prices to conform to international standards, despite the differences in cost of living between the various locations of development shops. A repeated comment from clients is “But I could outsource it to India for a fraction of the price”.

The local shops must therefore learn to compete against companies that will constantly be able to underquote them, without short-changing themselves in the process. Lowering the prices won’t do – the bills here are not being lowered, salaries here are higher.

The local businesses must learn to sell themselves based on what sets them apart. If that’s difficult to define, then they must learn to create value in themselves that can be defined. When you compete against a commodity, you must base your marketing against what makes you better than the standard packages.

  • Clearer communication on account of no language gaps.
  • Conforming to accepted best practices in application development.
  • Additional SEO work both on and off page to increase the visibility of the client’s completed project.
  • Larger basic packages without a proportional increase in price (that is, lower margins on the extras).

Is your target market being turned into a commodity? What can you offer that sets you apart? How will you continue to bring value to your clients that justifies your higher fees?

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  • http://bomshteyn.com Nathan

    I have been to a presentation recently where a guy was was trying to get us, listening people, to refer people to him for a specific product. And one of the people asked the guy are you prices lower then that of your big competitors? To which we got an interesting answer.. Our prices are about 20% cheaper then those of our competitors, but i don’t want you to say this to potential clients, because if/when they will ask me this question i will say that we are 20% higher in price, and if after that the deal still goes through i will tell the client towards the end that actually he will be paying less then if he would have gone to the competitor, his analogy was, i basically just sold a BMW at a discount.

  • http://blog.optimalupgrades.ca Elie

    Your selling point, as you say, cannot be the price, and so you have to make the price an irrelevant component of the sale. At the end of the day, the final price may end up being cheap for what is being provided.

  • http://www.more-for-small-business.com Kris Bovay

    Good points. Every business needs to develop, understand and be able to communicate their unique value proposition – what their value is, and what sets them apart from their competition. As you’ve said, price cannot be the differentiator because there will also be someone, somewhere you can do it cheaper (but not necessarily better).

  • http://blog.optimalupgrades.ca Elie

    Kris, that’s exactly right. To take your last statement a little further (“…but not necessarily better”), this gives you a selling point, provided, of course, that you are able to explain the differences in quality to the prospect.