It is never a commodity! Value-based pricing and commoditisation

Executive Summary

Think your product is just another commodity? Think again. A commodity is generally defined as a basic, interchangeable good with little differentiation in the eyes of the buyer. Traditional examples include raw materials like oil, wheat, or metals, where buyers perceive products as identical regardless of the supplier.

This article challenges the misconception of commoditisation, showing how even the most standardised products can benefit from value pricing. While certain industries may approach commodity status, most products have aspects of differentiation that allow for strategic positioning and value-based pricing.

We explore how in practise, almost no product is a true commodity and how KABEN can help you unlock optimal revenue by assessing and communicating value.

From Commodity to Value-Driven Product

The idea of “value-based pricing” is centred on the customer’s perceived value rather than production costs. Even in traditionally deemed ” commodity-driven markets,” products can command premium prices if the added value is evident. Businesses that take the time to understand and communicate their unique value find that few products truly qualify as commodities.

Quality is rare and valuable. When companies actively communicate the quality of their products and services, they tap into an often-overlooked but powerful differentiator. By showcasing reliability, attention to detail, or superior service, they signal to customers that they are receiving something unique and valuable beyond the product’s basic function. Effectively conveying quality allows businesses to shift customer perception, transforming even the most standardised offerings into premium products that stand apart in the market.

With the right positioning, even the most “basic” products reveal unique aspects that can create differentiation.

When companies assess and communicate their product’s value effectively, they find that almost no product is truly a commodity. By highlighting unique aspects, even the most “basic” products can be differentiated.

 Case Study: How  we achieved a 16% price increase within a quarter with a company-wide value definition exercise.

A global B2B hardware company generating €1.5 billion in annual revenue faced a new reality after a recent acquisition by a private equity (PE) fund. Previously near-monopolistic with their proprietary OS, the firm now contended with fierce competition from brands using Open-Source operating systems.

In the past, they never had to develop a sales capability as customers lined up for their products.  for the first time, sales teams, long unaccustomed to justifying pricing, felt pressured to sell at lower prices, convinced that their offerings were indistinguishable from competitors.

Internally, the company saw its products as commodities, leading sales and product teams to adopt a defeatist mindset around pricing: “We need to decrease our prices,” or “Competitors are selling the exact same product.” This perspective was likely true for some cost-focused customers, but there was more to the story.

• We conducted a comprehensive, company-wide value assessment exercise to uncover the strengths of the product.
• Through this exercise, we identified 50 differentiators that set their products apart, from hardware quality and customisation to historical reputation and manufacturing speed.
• We emphasised their extensive industry experience and established track record, as research shows that strong brand credibility can reduce customers’ price sensitivity.
• Armed with battle cards, argument guides, and specialised training, the sales team was equipped with a thorough understanding of the unique value they could deliver.

The results were transformative. Initially sceptical, the sales teams came to realise that their products offered value far beyond a basic commodity. They confidently shifted the conversation away from price and began highlighting product benefits, transitioning to a value-based sales approach that resonated with customers looking for more than just the cheapest option.

Following the implementation of the value-based strategy, coupled with other initiatives, prices rose by 16% compared to the previous quarter. This increase not only validated the effectiveness of emphasising the product’s unique value but also demonstrated that customers were willing to pay a premium for credibility and quality.

When companies take the time to assess their value, even subtle differentiators—like brand reputation, reliability, and flexibility—can set them apart from the competition.

Insights from Retail Banking

After wrapping up a project, I sat down with the Chief Transformation Officer to discuss the concept of commoditisation. He offered an observation, almost as a challenge: “There’s almost no such thing as a commodity—maybe in banking.” While I understood his perspective, our experience working for retail banks demonstrated that even in a market where products appear nearly identical, strategic differentiation is both possible and essential.

In retail banking, nearly every product offering looks identical at a glance. Checking accounts, credit cards, and savings products from various banks seem to blend in the eyes of the consumer, leaving little room for overt differentiation on features alone. But, despite this apparent uniformity, leading banks have transformed what could be a commoditised offering into something worth paying more for. Instead, they employ strategic positioning to add perceived value, creating loyalty and even enabling premium pricing.

Approach:

• Branding and Positioning: Banks create differentiation through branding and positioning, even with nearly identical products. They might position themselves as more youth-friendly, technologically advanced, or customer-centric. For instance, a bank might brand itself as the go-to institution for young professionals by offering innovative digital services and a modern brand image.
• Service Enhancements: A chequebook remains a chequebook, but banks differentiate through elements like the extensive reach of their branch networks, faster cheque deposit processing times, personalised financial advice, and an emphasis on superior customer service.
• Bundling Options: Banks offer tailored packages that bundle products and services to add value. A checking account might come with additional benefits such as travel insurance, waived international withdrawal fees, cashback offers, or premium customer support. These bundles are designed to meet the specific needs of different customer segments.
• Customer Relationships: Banks build and nurture strong relationships with their clients by focusing on customer needs and providing ongoing, personalised support. Banks communicate heavily on their satisfaction KPI to showcase their attention to their customers’ needs and satisfaction.

Despite selling similar products, some banks with higher fees maintain a loyal customer base, while others struggle to attract clients even with lower fees.

Even in highly standardized industries, perceived value and effective marketing prevent commoditisation. Retail banks utilise strategic branding, exceptional customer experiences, and innovative packaging to elevate seemingly standard products. By highlighting unique value propositions and catering to specific customer needs, they transform uniform offerings into differentiated services that customers are willing to pay a premium for.

Your product is probably not a commodity, even if you think it is

Many businesses assume their products are commodities, but in reality, they may be overlooking significant differentiating features. Often, this misconception stems from internal beliefs rather than customer perceptions.

When a PE-backed B2B platform aimed to overhaul its pricing strategy, we encountered an unexpected obstacle: resistance from its own Sales team. Despite rapid growth to a £100 million business, the company’s reliance on custom, transaction-based pricing created revenue volatility, complex billing issues, and pricing inconsistencies that worried potential investors.

Long-standing Sales team members believed customers valued only low-cost processing, fearing that a structured pricing model would drive clients away.

The low per-transaction fees, often just pennies, led customers to view the platform as a commodity. This masked the platform’s unique capabilities, even as clients realised differences after trying other providers.

To break through internal resistance, we organised direct conversations with customers. Several eye-opening insights emerged:

• Customers valued the platform’s distinct features and were willing to pay a premium.
• Many preferred a stable, subscription-based model over unpredictable transaction fees, which complicated their budgeting.

Armed with this feedback, the Sales team’s perspective shifted. Hearing clients’ voices directly helped them embrace a new approach that aligned with customer needs and business goals.

With these insights, we developed a subscription-based pricing model, generating £4 million in additional revenue while providing predictable cash flow. If your business is grappling with similar challenges, Kaben can deliver tailored solutions to unlock growth, build investor confidence, and ensure sustainable success.

Products can easily be miscategorised as commodities due to several factors:

1. Unrecognised Value: If a product’s true value hasn’t been thoroughly assessed and communicated, it may appear generic.
2. Uninformed Customers: Customers, especially those unfamiliar with a specific industry or product category, may lack the information to discern differences.
3. Ineffective Marketing and Positioning: Poorly executed marketing can blur the lines between products, making them seem interchangeable.

The rule applies to other industries as well

The chemical industry is often seen as the epitome of commoditisation—standardised products, mass production, and price-driven markets. Yet, even in this context, opportunities for differentiation exist. In our work with a leading European chemical manufacturer, we uncovered key strategies to break free from the commodity trap and unlock value through nuanced factors.

• Product Innovation: Subtle adjustments in formulas and dedicated R&D efforts allowed the company to develop products with unique properties tailored to specific customer needs.
• Quality and Traceability: By implementing certifications and advanced supply chain tracking, the company elevated customer confidence and positioned itself as a premium provider.
• Customer Relationships: Personalised service and tailored solutions strengthened customer loyalty, making price a secondary consideration.

These efforts demonstrated a broader truth: commodities rarely truly exist in practice. Subtle factors—whether certifications, origin, or unique product attributes—can significantly impact perceived value. For instance, just as Russian oil sells at a discount to Saudi oil due to market perceptions, products in other industries like agriculture also achieve differentiation through attributes like organic certifications or production methods (e.g., grass-fed beef).

Even the humble baguette, a staple of French daily life, offers lessons in differentiation. While many may reach for the standard baguette, connoisseurs know to choose the baguette tradition, crafted under strict guidelines (cahier des charges) that ensure superior quality. An example is Maison Desgranges in Paris, which rebranded this same baguette tradition as “Passy Passion,” transforming it into a product that commands loyalty and a premium price. Similarly, bakeries like Poilâne have elevated their bread beyond sustenance to a symbol of craftsmanship and heritage, supported by an authentic story of artisanal methods and a renowned family name.

Labels like Label Rouge or AOC (Appellation d’Origine Contrôlée) in agriculture showcase how certifications build trust and create room for premium pricing. Consider the Pink Lady apple, which sells at a 25% higher wholesale price than standard apples, or Bourbon Vanilla from Madagascar and Réunion, which commands a much higher price due to its unique origin and quality, despite being the same variety grown in other parts of the world.

The concept of branding even extends to Charolais beef in France, which has become a celebrated name in premium meat. Initially seen as a budget option due to its less appealing bluish colour and relatively mild flavour, Charolais beef producers invested in intensive marketing to reshape its image. Today, the Charolais label resonates with customers seeking premium, high-quality meat, allowing it to be sold at a higher price point both domestically and internationally.

This principle applies well beyond food. An experiment on eBay found that figurines with compelling stories consistently sold for higher prices than the same items with basic descriptions. Ultimately, even the most “basic” products can carry distinct characteristics that allow for premium pricing—when companies uncover and communicate their unique value.

Is Commoditisation a Marketing Failure? 

If you find yourself labelling your product as a commodity, it might signal a gap in either your marketing approach or your product management priorities. Commoditization often results from an absence of clear differentiation—an issue that can arise when unique features or benefits aren’t communicated effectively, or when product development doesn’t prioritise standout characteristics. Even in industries typically seen as highly commoditised, such as technology, chemicals, and financial services, there is ample opportunity for pricing differentiation.

Perceptions of commoditisation frequently emerge when customers fail to see distinct value. This doesn’t mean that unique elements are absent; rather, they haven’t been positioned in a way that resonates with the market. For instance, numerous providers might offer similar solutions, yet those who excel at conveying their unique strengths—whether in enhanced security, superior customer support, or advanced integration capabilities—are able to justify premium pricing and foster loyalty.

In the chemical industry, even standard-seeming products can command higher prices when positioned with a focus on attributes like quality assurance, traceability, or specialised formulations tailored to specific applications. Similarly, financial services companies that invest in a personalised customer experience can transform what might seem like generic offerings into valued, differentiated services.

In short, commoditisation is often more of a marketing and product development challenge than an inherent limitation. Through strategic branding, a clear articulation of value, and alignment of product priorities with customer needs, any business can move beyond price-driven competition.

Unlock Your Product’s True Potential

Ready to elevate your product from commodity to premium? If you’re struggling with pricing, and positioning, or don’t know where to start to leverage and maximise your product’s unique value, let’s connect!  We can help you.

Delve deep into your product’s unique selling points and Implement data-driven pricing models that reflect true value. Don’t let commoditisation limit your growth. Contact us today to explore how we can help you transform your seemingly commoditised product into a revenue-generating powerhouse. At KABEN, we specialise in helping businesses do just that: find the story, the quality, or the innovation that sets them apart and translates it into pricing power.