Fighting the digital commodity magnet Steven Van Belleghem - June 20, 2018

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As a business leader, you need to allow for the fact that your products are likely to be pulled with considerable force towards becoming a commodity. The big tech platforms are probably the biggest commodity magnet we have ever seen in the business world. Once the magnet starts to do its work, your company will be in a difficult position. In my latest book, customers the day after tomorrow, I talk about the difficult strategy to fight the commodity magnet.

The strongest commodity magnet ever

Automation creates the ability to offer some services free of charge. This is not a tactic in a price war. It is simply an expression of the potential to offer interesting services for no return in the world of AI. In 2015, the British entrepreneur Joshua Browder launched DoNotPay, a website that helps people to contest parking fines. It is a very simple and completely free system. The consumer talks to the DoNotPay chatbot. The bot asks a number of questions and on the basis of the answers writes a letter that the consumer can use to contest his/her parking fine. The letter looks highly professional. In fact, it seems like it has been written by an expensive lawyer. In reality, it has been written by the bot. The success of this service is phenomenal. In a period of just two years, the bot has successfully contested more than 375,000 parking fines at a success rate of 64%! In total, 9.3 million dollars of fines have not been paid as a result of this automated service. On the back of this success, Browder decided to add roughly a thousand different categories to the service range. Customers can now demand money back from airlines and the makers of defective products, or even insist on things like the right to paternity leave from their employers.

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During the third phase of digitalization (the phase of AI), the effect of the commodity magnet will become a harsh reality for many businesses. Digital forces not only put prices under pressure, but also increase the expectations of customers, so that costs rise. Seeking legal assistance used to be an expensive business. But now you can get good quality legal help free of charge, with 24/7 availability and no need to visit a lawyer's office! This is the digital commodity magnet at its strongest. Sectors that work with low margins today will be most vulnerable to the effects of the commodity magnet in years to come. The retail industry is a good example. Costs are already high and the price pressure is enormous. New competitors like Amazon, Alibaba and Zalando compete in a totally different way with a totally new philosophy. These new players have given a huge boost to customer expectation. As a result, most retailers have been sucked into the commodity magnet.

Strong drivers of commodity forming

Today, the main drivers for commodity forming are much more varied and more powerful than 20 years ago:

-      The large digital platforms: Amazon, Google and Apple are actively involved in the purchasing decisions of customers. They influence the choice process from the front line. Products are given less chance to differentiate themselves, because there is an intermediary filter. Just as Facebook decides what news you get to see based on what they already know about you, Amazon, Google and Apple are building filters that do the same for the type of products you can buy. As a brand, it is becoming increasingly difficult to influence customers directly.

-      Global forces: competition is more global than ever. For just a few euros, you can have products sent from China to Europe. Price pressure is fiercer and more international than it has ever been. Consumers are placing ever more trust in online players - even in companies they have never heard of. Their general (and generally positive) experience of online shopping is already so large that they are prepared to take the risk. In this way, convenient location and familiarity are no longer effective as weapons against commodity forming. What's more, the service provision of the vast majority of e-commerce players is excellent, so that pressure is exerted not only on prices but also on service levels, which increases costs.

-      Automation: consumers want things to be as easy as possible. Technologically supported purchases make the fewest demands for effort from the consumer. What they buy and who they buy it from are less relevant than the time and energy it takes. If a company wants to improve ease of use for its customers, it first needs to invest in new interfaces. Initially, this will increase costs, particularly in companies with an analogue DNA.

-      Transparency: full information about most products is readily available online and the web makes it easy to compare this information. When this comparison task is delegated to a digital assistant, the customer will be less involved in the purchasing process. As a result, perfect transparency in price and quality will make it difficult to differentiate on the basis of classic marketing techniques.

-      The demanding customer: In the past, companies were able to differentiate themselves by being outstanding in a specific aspect of the market. They were either the cheapest; or they offered the best service; or they had the newest product. You could make the difference through excellence in just one of these aspects. But not any more. Today's customers want top service and competitive prices. Being good at just one thing is no longer enough. Today, expectations for your non-differentiating aspects are also high. This means that the cost of serving the customer will increase, often without the possibility for any compensatory increase in price.

Fighting the commodity magnet: marketing towards humans AND algorithms

You can only fight against the powerful commodity magnet if you are willing to move away from the classic philosophy of marketing and sales. For many years, the task of the marketing and sales departments has been clear. Their aim is to influence the purchasing process of the customer by all legal means, so that he/she buys your product or service. Marketing experts use all the tactical elements from the marketing mix to achieve this: product, price, place and promotion. The company with the smartest and most effective influencing strategy ends up as the winner in the marketplace. Having a strong brand helps customers to deal with purchasing stress, since the brand serves as a marker for trust in an overcrowded market. Or that, at least, is the way it used to be.

Don't misunderstand me – influencing the purchasing processes of potential customers will continue to be an essential part of marketing in the future. The purpose of marketing will always be to manoeuvre consumer choice in the direction of a particular product or service. However, new technology now has the potential to soothe away consumer stress in a highly personalized and user-friendly manner. In the markets of the future, simply trying to influence people alone will not be enough to keep you out of the grips of the commodity magnet. You also need to influence the algorithms on which the new technology is based. Marketing for machines will become an essential part of every marketing strategy.

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Preparing marketing teams to meet the challenges of The Day After Tomorrow involves developing these dual competencies: the ability to influence both people and machines. Today's marketing teams still rely too much on classic marketing skills. Many companies are already feeling the pull of the commodity magnet, but try to resist it with classic marketing budgets (= marketing communication) as a way to increase their influence on consumers. However, there eventually comes a point when further investment in marketing communication starts to yield diminishing returns. Attracting the consumers' attention costs more and more. Buying the public's attention on TV is expensive. Buying their attention on Facebook or Google is becoming expensive. There is a ceiling to these forms of influencing.

If you want to win in The Day After Tomorrow, it is crucial to add data and AI expertise to your marketing team. Currently, the budgets allocated to influencing people are often huge, whereas the budget to influence algorithms is small or non-existent. This needs to change.

5 strategies to fight the commodity magnet

When working out your Day After Tomorrow strategy, is vital to think carefully about ways to actively resist the pull of the commodity magnet. If you just allow your company to drift along on the tide of developments, you will soon find yourself stuck to the wrong corner of the magnet. There are five strategic pillars that can help you to avoid this unpleasant fate:

1.   Be obsessed about convenience: Time is probably the most important resource in everyone their life. Question is: how laser focussed is your company on saving out time of your clients. This concept is what makes the tech giants big. They understand this paradox: the more time you safe out on customers, the more time (and money) they will spend with you. Every company should have this focus.

2.   Marketing for machines: in the past, we talked about search engine optimization (SEO); today and in the future, we need to talk about algorithm optimization. Yesterday, you wanted to be found by a Google search; tomorrow, you want to be found by a Google Assistant.

3.   Non-comparable products: if a product is easy to compare with its direct rivals, it is also easy for the algorithm to detect the differences between the products, which may not always work in your favour. If you can develop a product that cannot be compared with others, you will have a big advantage.

4.   A human touch: The human touch is clearly not the focus of the tech giants, which makes it a potential differentiator for other companies. This was covered in my previous book, When Digital becomes Human. The more scarce the human aspects becomes, the more value it has. Humans should focus in the emotional parts of a customer relationship. In fact, it is possibly the biggest differentiator of all in a digital world.

4.   Finding new markers of trust: classic marketing communication no longer reaches large parts of the market. To influence people in the future, you need to find channels they know and trust.

The power of the commodity magnet is huge. Digital platforms are taking over the primary positions in the brand hierarchy. As a company leader, you can't just let this happen. Working together with the digital platforms has become inevitable, but at the same time you must rise to the challenge of maintaining the position of your brand, as best you can, against them. This is a very difficult balancing act. 

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Steven Van Belleghem

Steven is an expert in customer focus in a digital world and in how our customers will behave in the Day After Tomorrow. He is a popular speaker at home and abroad. In his keynote...

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