If you accidentally stumbled on this story on Google thinking it was going to be about how to arrange cereal boxes on a supermarket shelf, you’re in the wrong place.
This article is about how to create products that are designed to withstand commodification or virtualization. On second thought, some of that might apply to cereal brands, as well, so stick around.
(Note: this article is a follow-up to Sunday’s The virtual will not replace the real… except in three special cases.)
The bane of commodification
Say you’re created a fantastic dress in your own unique style. Then someone comes along and creates a knock-off, different enough to avoid a copyright infringement suit, but similar enough to directly compete with your product.
There’s not much you can do. If they copied you directly, you could try to go after them legally and feel like you were at least doing something.
This is commodification.
It relates to a law of economics, that prices, over time, tend toward the incremental unit cost of production.
So, say, if it cost you a million dollars to develop your dress idea, but only a dollar to manufacture it — you went to Inner Mongolia — then you could charge $1,000 a pop for it to try to cover your initial investment. But your competitors will sell a similar dress for $500 and make up the difference in volume. And their competitors will sell it for $250. After a while, some competitor will figure out how to live with just a one-cent profit margin — say, by selling millions of them at Walmart — and price the dress at $1.01.
In the virtual space, the situation is even more extreme.
You could spend millions producing a valuable product, but if your unit production and distribution costs are zero, then you’ll have to give the product away.
Don’t believe me?
Just look at radio and television. Those programs don’t come cheap. But the incremental costs of getting them to just one more viewer or listener is effectively zero. When you drive into a radio station’s coverage area and start listening to its program, its costs don’t increase.
Newspapers and magazines used to be in the manufacturing business, with big printing and distribution costs. Then they went online and now they’re in the broadcast business. Some of them still haven’t figure out how to deal with it.
But I’m not all about doom and gloom here.
I have a solution.
There are three factors — which I’m labelling by the convenient acronym ART — which will help isolate a product against commodification.
It stands for Appreciate Rare Traits.
Let’s go through them one at a time
Do your customers appreciate your product?
Are they proud they own it? Do they brag about it to their friends? Do they wear it to the best parties, or hang it in the nicest place in the house?
Let me give you an example of two identical products, one of which is appreciated, and one that isn’t.
The first one is a $1 million diamond with a long history of royal ownership.
The second is a $10 knock-off that looks identical to anyone outside a laboratory.
The diamonds are identical. Nobody can tell the difference. But people are going to act differently around the $1 million diamond. They will insure it. They will keep it in a safe. They will get a custom-made setting for it. They will wear it to the Hollywood premieres and show it off to their friends. They will put it on a ring and propose to a model with it.
The $10 diamond, they’ll throw in a drawer with the rest of their costume jewelry. They’re not going to appreciate it.
Is your product appreciated?
Here are some ways to improve appreciation:
- Raise the price. Expensive things are typically appreciated more than cheap things.
- Tell a story. Whether its a personal story about the creator, or a story about the product itself, an interesting history makes a product special.
- Drop names. Is the product or service also used by a celebrity or role model?
- Associate it with a good cause. Give a portions of proceeds to charity.
Look for ways to make customers proud to own your product, and to tell their friends about it.
Is your product rare — or commonplace?
When it comes to both physical and virtual goods, familiarity does breed contempt. Mass distribution cheapens products. That’s fine for folks who want to be in the commodity business — not so fine for companies that want to stay out of it.
Limited edition prints are more valuable than ones available in every poster store in every mall.
If you go on a wild animal photo safari, you’ll pay more money to take pictures of endangered tigers than of squirrels, raccoons, or deer. If you go to zoo, you better get a polar bear exhibit, and not cows. You can see cows just by driving around.
It’s not always easy to take a generic item and try to convince people it’s rare and unusual. The diamond industry has done it. So have beer makers, with their craft beers.
For virtual good manufacturers, artificial scarcity is easy to create, but can be difficult to maintain over time. For example, you could issue a limited number of copies of a particular item, or sell them only for a short duration, or only to a select group of customers. Marketing is key here — the select customers have to know that they’re select customers, and all the other people, the non-select group, have to be aware of the fact that they weren’t selected.
Part of the pleasure of owning a rare item is knowing that other people know that they can’t have it and will have to settle for a cheap generic imitation instead.
“I have an authentic, signed, limited edition original,” your customers will tell their friends. “Oh, yours isn’t signed? Must be a knock-off — but I’m sure it’s perfectly nice.”
Ways to make your product rare:
- Limited edition. Sell only a certain number of the product, with certificates of authenticity.
- Limited time. Once the time is up, the product is gone forever.
- Limited customers. Sell only to your friends, and to their friends. Nobody else can get it.
- Unique items. The extreme case. Sell only one copy of the item, then destroy the original.
Does your product have special traits?
Instead of “traits” I was originally going to use “features” but that would have made my acronym ARF. So “traits” it is.
This is last on the list. Many content creators tend to want to compare features first, but, in fact, features actually matter very little when people make buying decisions. If features were at all important, the diamond industry wouldn’t exist.
I use myself as an example here because I know what I’m like when I shop.
I’m cheap. So price is an important feature for me. And when I’m shopping for, say, soda, taste and temperature are also important.
So if I”m thirsty, I prefer to buy a cola rather than, say, a lemon-flavored soda.
If I was in a restaurant, and a server brought me two identical classes, each with a different brand of cola, I would not be able to tell them apart. If I can’t see the label, all colas taste the same to me.
But if I can see the label, then all of a sudden Diet Cokes taste good and everything else tastes absolutely horrible. I bought some Diet Pepsis one day because they were on sale and I couldn’t drink them. Generic cola tastes like a chemical bath.
Okay, you might think, but Maria is an idiot. What about real people?
Look up what happened to French wines when the experts switched to blind taste tests. All of a sudden, they didn’t rule any more. A fancy label and a steep price tag will make wine taste better even to wine experts.
But I’m digressing.
And sometimes, traits do matter. Perhaps not in diamonds. But some products do offer more benefits to customers than their generic equivalents.
Some examples of special traits for virtual products:
- Higher attention to detail and craftsmanship.
- Latest fashion.
- Customer support.
- Future upgrades. This is particularly useful for scripted products, but even non-scripted products can be upgraded, with new colors each season for example.
- Custom fittings. A virtual dress, for example, might come with a personal fitting and a custom color adjustment to ensure that customers look their best in it.
- Community. For example, registered buyers of your virtual pets could get access to a breeding area, or shows and competitions. Buyers of your high-end dresses can get invites to exclusive fashion shows. Only your best customers would get an invitation to your art show’s opening night.
Increase the value of your products or services, and help protect them against commodification or virtualization by focusing on those three elements. And don’t be afraid to pile them on.
Find ways for people to appreciate your product.