Rethinking Manufacturing To Avoid The Product Commoditisation Trap

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With many of our manufacturing sectors such as Automotive, Aerospace and Defence on the rise again, it’s a great time to be a UK manufacturer right now.

World populations are booming, becoming more affluent and demand for British products is increasing once again.

Unfortunately though, globalisation doesn’t just bring us more opportunities.

Threats come too.

The Product Commoditisation Trap

Our competitors now include overseas companies operating in more favourable economic environments where labour costs and energy prices are lower, legal/social requirements are less onerous and Government subsidies higher.

Unable to compete on a like for like basis with such threats, UK manufacturers are falling into the commodity trap at the same time as experiencing cost-down pressure from their largest customers.

Small to Medium Enterprise (SME) manufacturers, in particular, are suffering quite badly from product commoditisation and it is these smaller businesses that provide the majority of employment opportunities and job growth prospects in the UK.

So how are manufacturers, large and small, to respond?

What options do you have?

Or should you just throw in the towel, move all your manufacturing jobs overseas and give up the fight?

How To Compete Effectively

The secret to winning any competition lies not in playing to your competitor’s strengths, but playing to your own and the smartest players of all find a way to change the game completely.

For manufacturing businesses, this translates into finding a new way to compete or a new way to deliver value that competitors can’t imitate quite so easily.

Leading UK manufacturers are now achieving this after spending the last 1-2 decades involved on a journey of service transformation.

Service innovation (servitisation) is becoming the new battleground.

To understand why, it helps to rethink manufacturing and how value is created for manufacturing businesses.

How Manufacturers Create Value for Customers

If we want to change the game, we first need to understand the game being played.

Since we are talking about manufacturing, it makes sense to ask – what is a manufacturing business?

What does it actually do?

Obviously, manufacturers make products and most manufacturers design and sell them too.

After all, the capability to make stuff is what distinguishes a manufacturer from a distributor or retailer, for example.

But who says that a manufacturer can’t offer services too?

Today’s customers are more sophisticated than ever before and becoming more self-interested as well.

So if we were to ask our customers what they really want from a manufacturer, we would probably find that they want a solution to match their total needs.

In other words, they don’t really care about products or services as such.

All they care about is what’s in it for them regardless of whether our customer is an individual, a business or a public sector organisation.

After all, it’s their money and they will spend more of it on the solution that matches their needs the closest from the available alternatives.

A customer’s needs could be satisfied 100% by a single product or service but that’s extremely unlikely.

It is much more likely that the ideal, comprehensive solution they value the most and are willing to pay the most for will comprise an integrated mix of products and services.

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Explicit and Implicit Services

If you disagree with this statement then just think about it for a moment – when did you last buy a product that didn’t include an element of service too?

Even if you weren’t asked to pay extra for explicit services such as delivery, extended warranty, insurance, installation, training and so on, most purchases usually involve implicit service elements built into your product purchase.

Think about after sales service, catalogues, technical/product assistance from sales staff, tender responses, offer proposals, estimates or quotes, free samples or trials, etc.

All of these contribute to the cost of sales and thus are recovered via (i.e. included in) the price of your product.

Regardless of whether these are Business to Business (B2B), Business to Consumer (B2C) or Business to Government (B2G) sales/purchases, many of these service elements still apply or have an equivalent.

Suffice it to say then, there’s no such thing as a pure product sale or purchase.

From the customer’s perspective, even if they think they are just buying a product, their purchase decision is influenced to some degree by service elements, whether they are consciously aware of this or not, and whether they are explicitly requesting and paying for those services or not.

So, even though a manufacturer designs, makes and sells products, it is not just about who can do that the best and the cheapest.

The game is really about how to create value for your customers in ways that your competitors can’t.

Additional Resources

Learn more about how you can transform your business to avoid the product commoditisation trap and create more value for your customers by reading our white paper: Rethinking Manufacturing – How To Protect And Grow Your Manufacturing Business By Giving Your Best Products Away.

How Servispart Consulting Can Help

Want to grow your aftermarket revenues and profits? Learn more about how our Service Growth Accelerator Programme can help you identify and develop your best growth opportunities.