How To Keep Your Operation From Becoming A Commodity

Bill Faeth
Posted on August 22, 2018

Harley Davidson management had a tough decision to make: Lower prices and retain their current market share or keep prices steady and risk losing shreds of the market share they had left. (Flickr.com photo by Thomas Vogt)
Harley Davidson management had a tough decision to make: Lower prices and retain their current market share or keep prices steady and risk losing shreds of the market share they had left. (Flickr.com photo by Thomas Vogt)
When you think of Harley Davidson, you probably envision a powerhouse brand. The classic motorcycle company has an outstanding legacy, but it’s also one that has been marked by significant decreases in pricing power.

Harley Davidson became a household name at the start of the 1900s. After enjoying nearly 70 years of market dominance, Japanese competitors, including Yamaha, Honda, and Suzuki, provided a higher degree of reliability for less — a value proposition with which Harley Davidson could not deliver.

Management had a tough decision to make: Lower prices and retain their current market share, or keep prices steady and risk losing shreds of the market share they had left. How the company got out of its first round of commoditization may surprise you…

Low Price Competition Can Disrupt Any Service Industry

Instead of choosing between the two equally destructive ultimatums, Harley Davidson positioned its brand message in terms of customer benefits. Tapping into the business’ core base, it leaned into the idea that “rebels” rode Harleys. Cue the rise of the Harley Owners Group which helped the company dig itself out of a hole in the 1980s.

Unfortunately, Harley Davidson’s price-benefit competition hiatus didn’t last long.

Soon after gaining back some of the market share it lost to lower-priced competitors, premium US-based models entered the scene. The emerging companies identified a neglected yet rapidly expanding segment of the motorcycle market: American women.

Management spent years price-slashing to remain relevant and profitable before releasing a new brand geared to women across the U.S. The limo operators I speak with regularly know the Harley Davidson narrative all too well.

With more competitors offering similar benefits, it can seem like a never-ending race to the finish. It’s not enough to be, or even say, you are different.

Changing the parameters of your service offerings to communicate a different value to clients won’t solve all commoditization problems. It is a good start, however.

Commoditization traps, as Richard D’Aveni calls them in his book Beating The Commodity Trap about increasing pricing power and maximizing competitive position, are capable of throwing any company off track. No one industry is more susceptible than another.

The ground transportation industry in particular is subject to deterioration. This occurs when low-cost players enter the game and appeal to the general public.

How To Overcome Lower Priced Luxury Limo Competitors

It can seem daunting and nearly impossible to go toe-to-toe with these types of competitors. D’Aveni offers up a strategy for minimizing and overcoming deterioration commodity traps:

• Take advantage of the situation by appealing to high-end consumers. Let the low-cost players fight over grains in the low-end sandbox.

• Don’t underestimate the insight you can gain from seeing other brands maneuver changes in their markets.  

Limo operations who not only survive, but also thrive in constant commoditization are the ones who stay on top of market trends, adapt to them, and make critical transformations to the industry in its entirety.

 

Bill Faeth is the founder of Limo University (www.LimoGrowth.com), Inbound Marketing Agents (www.inboundmarketingagents.com), and 23 additional startups, including Silver Oak Transportation of Nashville, Tenn. As a successful former operator and active advocate for the industry, Bill invests in educating and training operators on how to grow, manage, and sustain a more profitable business. You can reach Bill at [email protected] For previous Bill Faeth blog posts, articles, and magazine columns, click here.

Related Topics: Bill Faeth, operations, profits, service pricing, staying competitive

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