How to Avoid Commodifying Your Offering

Blair sees four common behaviors when business owners are looking to get deals moving in times of economic decline, stagnation, or uncertainty that end up doing long term harm to their positioning and pricing.

Links

"Four Ways to Commodify Your Offering" by Blair Enns on WinWithoutPitching.com

"Phase Your Client Engagements" 2Bobs episode

Transcript

David C. Baker: You remember, Blair, we did two podcasts that were spoofs. One was on your website, the other was on the perfect proposal or something?

Blair Enns: Yes.

David: I wonder if this one ought to be better? [laughs]

Blair: Oh yes, this one should come with a warning.

David: How to commodify your offering, as if we want you to do that.

Blair: I guess maybe we change the name of this episode because people looking at it going, "I'm not interested in commodifying my offering." You shouldn't be.

David: How not to commodify your offering.

Blair: Listener, as of this recording, this title is called how to commodify your offering, but it may change by the time it goes to air.

David: The thing I like when I get the notes from you send them a few days ahead of time and I look through them and the first thing I do is I try to guess your mood and it's like, "Geez, you were a little full of yourself with this one."

[laughter]

David: Some of it's self-deprecating, but some of it is like, "Dang, I'm funny." That's how you're thinking about yourself.

Blair: Oh my God, I don't know what you're talking about. I may have been high when I wrote these notes.

David: It was something like that. What we're talking about in this episode is four ways you might not want to commodify your offering, and so here are the warnings about how to do that, right?

Blair: Yes, that's right. I think in times of economic downturns or uncertainty, which I think as of this recording, late July of 2024, that would be one of those for most of our audience. I think we push and pull on all the sales levers that we have. Some of those levers, the things that we push or pull on, depending on what it is that you do with the lever, the goal is to increase sales, but it causes some damage, some collateral damage.

A common form of collateral damage when we're trying too hard to generate sales is we water down our positioning. We end up commodifying what we do. We take what we do, which in our minds, we should see it as something that's very unique and specific to our firm and not easily replicable or substitutable by the offerings of other firms, but in the things that we do, we actually send these messages to the marketplace that what we do is just like what other people do, and it's probably not worth as much money as we're asking for it.

David: "Please hire me. I'm not desperate." I'm struck by how, without thinking about context, you might ask yourself, "Why in the world would I ever do this?" You mentioned a few minutes ago the time period we're recording this in, which is not the best time for the industry, and so you know in your heart and your head, "I want a really strong long-term business, but I've got payroll right now," or, "I just lost this big client, so maybe I'll eat away at this reputation that I've slowly been building over the last seven years," and these temptations are real and they're natural. They're the kinds of things that no matter where we're positioned, we all face these things. They're real.

Blair: Yes, agreed.

David: The first one is sell thinking in units of doing. Sell thinking in units of doing. This one, if we were going to anticipate what would be on your list of four things, we know this would be on here and this one's first.

Blair: I've talked about this before. We did an episode called Phase Your Client Engagements, where I talked about the four phases of your engagements with your clients. They are diagnose, prescribe, apply, and reapply. You diagnose the problem or situation, then you prescribe a solution, then there's the initial application of that solution, of that therapy in medical terms or solution, and then ongoing reapplication is necessary.

Those first two phases, diagnose and prescribe, are what I call the thinking phases. Then the second two phases, apply and reapply, are what I consider to be the doing phases. The mistake is to sell the first two, diagnosis and/or prescription, which together I would refer to as strategy, to sell those thinking services in units of doing, and that means charging by the hour or by the day.

David: I refer to that sort of as room one, the first two, diagnose and prescribe. I'm going to say this, but I'm not sure you'll agree with it, so tell me, but that's why you might productize the first two because in productizing a service like this, you are unhooking it from certain specific units. It's like, "We're going to do this for you, here's the cost, you're not thinking about how long it takes."

Blair: Yes, productize is a bit of a trigger word for me and it probably shouldn't be. I need to get over it, that's my shortcoming. I think you're right, I think they should be productized, meaning you should package up a standard diagnostic service or a standard set of diagnostic services. What causes my hackles to get up is the corollary danger of pricing those products.

Now, that's not a universal danger in some businesses, in productized businesses it makes sense to price the product and not the service, but for most of our listeners, certainly not all of them, and less of them as time goes by, but still for most of our listeners, when you package up a service like that, you should not put a standard price on it, you should continue to price the client, but yes, you're right, you should have a standard diagnostic product or service and it should be written up in a one page description, you should be able to share that description with the client and say, "Here's how we begin, here's what we do, there should not be a price on that and you should price the client."

David: Something I noticed recently that I'd never noticed before is that PR firms around the world and video production firms all around the world typically price by the day, but all the other creative service firms in the US and also dev shops are more by the hour, but those same firms overseas in Western Europe are by the day, it was sort of an interesting thing. Whether it's by the hour or the day, it's still a unit, it's still charging by a particular unit and you're arguing that should be uncoupled. You've got a thought here about whether certain people's labor should have an hourly rate attached to it and you make a distinction there.

Blair: I'm imagining a scenario where you're getting pressure from the client to put an hourly rate on thinking, which when you think about it is really just a silly idea. They're trying to measure something, but it's like the drunk looking for his lost car keys under the street lamp, not because that's where he lost them, but because that's where the light is good. That's the old joke. They're trying to measure something, even if it's just a ridiculous thing to measure. I'm imagining that scenario, you, the listener, you're getting pressure from your client. You've quoted say $20,000 for the initial thinking work, whatever you want to call it, strategy.

Now, I'm keenly aware of a recent episode we did, have we hit peak strategy? Whenever I use the word strategy--

David: This is going to bite you in the butt.

[laughter]

Blair: What's the sign of an advanced mind is the ability to hold two seemingly opposable ideas in your mind at the same time and still be able to function? That's my fallback. I'm imagining the client pushing back saying, "No, break out the strategy for me." They might be as indirect as that. "Just break it out and show me how you arrived at the cost," or they might be more direct and say like, "What's the hourly rate on that?" You want to push back and say, "We don't charge for this by the hour."

If your firm is large enough, ideally you want to be in a position where you have certain people, if you do in fact have billable people, if you are selling time at all, and that's a conversation for another day, but if you choose to do so, and your firm is large enough, you would have your key people like your strategists and maybe your creative director not have an hourly rate. You're in a position to be able to say to the client, "We can't break this out. We don't sell thinking in units of doing and the people who do this type of work, they don't even have an hourly rate. I couldn't even do that for you if I wanted to." That's the position you want to be in.

Now, a lot of listeners would have personnel that would execute on the more thinking phases of the engagement and the execution phases so that argument goes away. In those situations, you just simply say, "We don't charge for thinking in units of doing." If a client says, "How do you come up with the price?" I've modeled this language before. You would simply say, "This is what we charge for clients like you for work like this." That opens the door to other interesting conversations. "What do you mean clients like us? Would you charge us more if we were larger?" "Yes." "Unless if you were smaller?" "Yes."

David: There's more at stake, less at stake?

Blair: Yes, there's more at stake. We've covered this in other episodes on value-based pricing. The listener can go back and search for those in their podcast feed. When you think about it, the first way to commoditize your offering, and I say this in the wind without pitching manifesto, the fastest way to commodify your thinking is to sell it in units of doing. You think of it, it's really just silly. The idea that you are selling thinking in the units of how long it takes. They're just wild, ridiculous guesses. Why don't we just cut it out with the lies and the guesses and just put a price on it, however you care to put a price on it and don't feel like you have to justify that to the client.

David: I've decided that I'm not going to sell my thinking by the hour anymore. Of course, I actually respond to about one email a week saying I don't do hourly stuff, but I'm going to start selling showers for $4,000 because that's where I come up with my best ideas, doggone it.

Blair: You're saying for $4,000, the listener can shower with you?

David: No, no, no, no, no. Let's just make this clear.

Blair: You're going to starve?

Blair: It's $8,000 if you want to shower with me, $4,000 alone. That's the first one, sell thinking in units of doing. That's one of the quickest ways to commodify your offering. The second one that you have here out of four is cut price early and without reciprocation. I expected the first one. This one I really, really love because it's something that we need to be reminded of a lot.

Blair: I think I've said in two books, and I think it's probably in the third book that's coming out shortly, I don't think you should cut price to win new clients. I think you save price discounts for your very best clients who need a break. Every rule deserves to be broken. If you are going to cut price, there's a right way to do it. The way to do it, the proper way to cut price if you are going to cut price is to effectively not negotiate with yourself. You know the phrase, "Don't negotiate with yourself. "What that really means is don't cut price when you aren't absolutely sure or as sure as you can be that cutting price will lead to closing the deal.

I think I spoke about recently in an episode me buying something and the salesperson doing a stellar job. I was in admiration of how they were navigating the sale. Then at the first obstacle, they just cut price. They cut price by a third. It was crazy and I still haven't bought. I still intend to buy and I know I'm going to get not only the cut price, I know they will go lower. I know I will get my price. You don't do that. What you do if you are going to cut price is you simply trial close first and you make sure there are no other obstacles to doing the deal that you would have to remove before cutting price.

It simply sounds like, "If I were to be able to give you that deal, then do we have an agreement, or is there something else standing in the way?"

David: I would say, "Oh, I would do that deal." Then you'd say?

Blair: I would make sure, okay, there's nobody else. There's nobody else that needs to approve this. You don't need to run it past somebody.

David: Of course, you still don't believe me yet, but I would say nobody.

Blair: There's nothing else you need because I'm just making sure, like if I were able to get you that price, and I'm implying that I have to go back and see somebody to approve this, but if I were able to get you that price, we have a deal. Great, we'll sign today. You say to me, "No, no, I'm telling you, Blair, you give me that price, we've got a deal." If you're going to cut price, that's when you would do it. What I mean is the fastest way to commodify your offering is do what this salesperson did to me recently that I keep talking about is to cut it really without provocation too early and without getting the appropriate quid pro quo, which is, "If I'm able to do this for you, will you sign off on this today or is there something else you need to do?

The answer would have been, "There's a little bit more work we need to do, but we're not buying today." That's what he would have heard from me. Then the appropriate response would have been, "When you're ready to buy, when you get these two or three things done, and it's time, come back to me and we'll have this conversation again." He should not go there now and signal his willingness to cut price, although he is signaling that it is on the table for discussion, but he's not cutting price before it's appropriate to do so. That's what I mean. You'll commodify your offering by cutting price early or without reciprocation or this quid pro quo of, "If you give me that price, I will sign."

David: I'm picturing the auction for some farmland next to ours that was two months ago, I think. My wife and I wanted to buy one of the lots and we put our heads together. We went and visited a bunch of auctions just so we wouldn't get taken advantage of. Alas, that didn't work. Anyway, and then we said, "We think we can go up to $20,000 an acre for this small lot.

The bidding went up to $42,000, and that's it sold at $42,500. We lost out on it, which is fine. I'm picturing myself as being the only person at the auction rather than the 49 people who were there and saying, "I'll bid a little higher here, but will you give me this?" It's like being the only person at the auction and keep outbidding yourself. It's just a ridiculous concept. Hey, I got one question. Is the person that you're negotiating with, do they listen to this podcast because you might be screwed?

Blair: Every time I mention this person, I run that mental check. "I wonder what the likelihood is that he listens to this podcast. I might be screwing myself."

[laughter]

David: The first is self-thinking in units of doing. the second is to cut price early without getting something for it, and the third is to use tech to scale your delivery?

Blair: Yes, the first two are the most common patterns I see. You know what's not on this list of four ways to commodify your offering? Pitch it for free.

David: Oh, yes.

Blair: You would think the win-without-pitching boy would put that on the list. I think it's just so obvious it didn't merit talking about. These next two, these are the more obscure ones that maybe people wouldn't have thought of. This one of use tech to scale your delivery.

I'm really at a loss to think of good examples beyond the one piece of technology that is online courseware, but I cannot tell you how many times I've had the conversation in the last five or six years, I think it was pretty common during COVID, where I talked to an agency principal whose sales were down, and they had this point of view, this knowledge on how to market or whatever it is they do for whomever they serve, they've decided to launch a course. The idea is we can't charge much. It's not like an advisory engagement or us being hired to execute.

David: There's a lot of people who need our stuff but can't afford the way we normally do it, but they would buy this. That's what they're thinking.

Blair: Yes, that's exactly it. We'll charge a little bit of money and we'll get a higher volume. The volume never comes. These models of essentially productizing your services, driving the price way down, they work when you drive the volume way up. In a typical agency, creative firm, dev shop, et cetera, whatever it is, there just is not the volume to support that. Five, six years ago, I started saying to people who would inquire about this approach with me, usually clients of ours, I would say, "Be careful. The mechanism by which you scale your offering is also the mechanism by which you will commodify it." That is one of the more genius things that has accidentally come out of my mouth.

David: What you said in your notes to me was this quote by Blair Enns', boy, genius.

[laughter]

David: That's why I thought you were full of yourself.

Blair: That's what you meant. Point made.

David: There's a couple other references in here too. I know exactly what you're talking about. Sometimes I'll come around and say this, but when I don't even come out and say it, I'll think it is like, "Yes, the world needs another one of those."

Blair: In the notes here, I said, "Remember SurveyMonkey?" Some of the listeners might not be old enough, but when online surveys became a thing, and it was like all of a sudden you could so easily deploy surveys to your clients and prospects, we were drowning them. Everybody was sending online surveys to everybody else and nobody was filling them out. It was like e-greeting cards. This is going back, I don't know how many decades now, when this became a thing, "Oh, man, I can just email a birthday card to somebody by going to ecard.com," or whatever it was, then we were all inundated with these stupid e-cards. We were inundated with stupid surveys.

Now, I put in here, remember Kajabi? Still a thriving business. Online courses became relatively free and easy to deploy. Now, we're drowning in them. What the market says is, "The billion-dollar idea packaged in a book is worth $25. The billion-dollar idea packaged in a self-guided course is worth $47." That's what the market says. There's something about the way you package your advice or your IP and deliver it to the market that signals what people should pay for it. "We'll just do a self-guided course, if we can just get 1,000 new students a month," and then you end up getting 1 or 4 or 40.

David: There's something about this field that deeply understands innovation, and usability, and quality, and creativity, but does not understand funding and scaling and marketing and basically just what it takes to bring the huge audiences to something like this. It's not as if the courses that people are creating aren't fantastic, it's just they don't know how to create the demand for it.

Blair: My friend, Mike Lander, pointed this out to me a while ago. A big Fortune 500 company did some research on the value of training. What they found is that about 15% of the value is in the training itself. That's human guided training, not self-directed training. I would say the likelihood of your self-directed course catching on, first of all, to your point, you're going to have to fuel this with all kinds of marketing dollars.

You're going to be adding to the coffers of Facebook and Google via AdWords at an even faster pace. It's an entirely different business model, not something that you can dip your toe into. We're a training company and I know how hard it is to sell a massive volume of training to just dabble in it and have the revenue, a, be meaningful, and b, more pertinent to this conversation, not commodify the value of your core offering, it's really difficult to pull off. MOOCs were big a decade ago. MOOC stands for Massive Open Online Communities. This is like Coursera and I forget the other ones, but these massive training companies where you'd have hundreds or thousands of people piling in to do these online courses. I just wanted to point out that the M in MOOC stands for massive. For this to work, you need so much scale. If you don't get that scale, what you're going to do is you're going to cheapen the content of your offering.

David: Not make a lot of money off of it.

Blair: Now, a self-directed course of some kind as a lead magnet, that is a different kettle of fish. I'm not dismissing that, I'm just saying that if you're doing it to generate leads rather than generate revenue, that's more valid, but it's still going to have the negative effect. You start giving your thinking away for free or for $47, what does that say to the audience about the value of your consulting services or your advisory services?

David: You're putting downward pressure on it, so in the spirit of an own goal in football, you remember when these surveys came out, a friend, you and I, the three of us, put together 132-question survey.

Blair: Oh, yes.

David: [laughs] We were shocked at more than 100 firms answered it. We were right on that bandwagon too. The first one is sell thinking in units of doing, don't do that. Second one, don't cut price early without getting something for it. Third, which we just talked about is to use tech to scale your delivery. The final one is to use your efficiency advantage as a reason to hire you.

Blair: Yes, this is maybe the less obvious one, probably not as obvious as using tech to scale your delivery, it's basically using technology to scale a production advantage or to deliver a production advantage. That's obviously something that we should all be looking to do. In the brand new gold rush of AI, everybody, every listener to this podcast is almost certainly using AI to explore some sort of production advantage, to get work done faster.

We should all continue to do that. It's a fun thing to do and it's yielding some advantages here and there and some dead ends elsewhere, but the mistake I'm talking about, what everywhere is we are an AI-backed, blah, blah, blah. We use AI too. That's all fine because AI is the latest bright, shiny thing, so there might be some advantage to that. In fact, I was reading a website yesterday, somebody referenced, I pulled it up, and I caught my positive reaction because this service that's described on the website, I won't even say what it is, but it said, we are an AI-enabled blank, essentially service provider. I thought, "Ooh, they use AI."

Then I caught myself and started laughing. Everybody's using that claim. Everybody's using AI to some extent, but the point I want to make here is if you are using AI or any other technology to gain a production advantage, the last thing you want to do is openly leverage it as a reason to hire you. "Hire us because we use AI to do work quicker." Because that message says to the buyer that your costs are lower, and the buyer says, "Those savings are mine." The larger the buyer, or the more sophisticated the buyer, the more likely they are to claim those savings as their own.

If you are using AI or any other technology to bring yourself a production advantage where you can do work cheaper, the best thing to do is to not talk about it.

David: "Let me buy a 12-core Mac, so I can do Photoshop faster and charge you fewer hours." It's the same sort of thinking. I was shopping for a massage chair yesterday. Mine died after like eight years.

Blair: You have a massage, how old are you?

David: I'm 39. Shopping for a massage chair. The high-end ones were all AI massage chairs. It's like, "What? Tell me what AI is doing for me here." Pretty soon, the most valuable things in the world are going to say, "Free of AI. No AI involved."

Blair: My washing machine still has the blinking Wi-Fi light on it that says, "Hey, I'm not connected to your Wi-Fi." It drives me crazy. like what were we thinking when we thought we needed our washing machine to be Wi-Fi enabled? I'm waiting for the AI washing machine. I won't use the AI, but they're going to use it to charge more. Sorry, go on.

David: What's another example of this besides AI? Does anything come to your mind in terms of how we might tout something we're doing as if this is a significant advantage? What was it before AI?

Blair: It's any production advantage, so offshore labor.

David: Oh, right.

Blair: If you have a labor advantage, or you've built some special software internally. There are a lot of infrastructure plays where an agency develops its own software. I think the first ones you and I were aware of were around timekeeping or project management. Then they decide to spin these off into separate companies. That's all fine. Bragging about production advantages of any kind is not a wise idea unless there's a corollary drop in price.

If you're using a production advantage to go to the market with a more competitive price, then absolutely leverage that. I referenced our friend, Matt Bishop. He owns an engineering company in New Zealand, and he's got a engineering product company called Penguin with an R in front of it, where they use AI to generate engineering drawings. They're pretty open about it because they use the technology to deliver it in less time at less price, and that's something they want the market to know about.

Unless you're doing that, building a new business or your pricing strategy is to put pricing pressure on your competitors by leveraging your cost advantage, then do not talk about your production advantage, even though it is the bright, shiny thing that is AI.

David: It's okay to talk about the production advantage if you are intentionally doing it to lower the price. If you want to make more money and hold more of that profit, then don't talk about it.

Blair: Yes, or if you have built some black box technology through AI that is a production advantage and also a sales advantage, by that is you can legitimately or confidently make the claim that, "We can do something that our competitors cannot. We have built a better mousetrap by using this technology," and there happens to be production advantage implications, that's okay too. You go to the market and you can keep that extra margin but this AI arms race is happening pretty quick. The idea that you're going to have a sustainable technology advantage for too long, I wouldn't bank on it.

David: I've helped quite a number of clients over the years develop their own unique proprietary IP. The way we'll inevitably talk about it is that this helps them arrive at a higher level of certainty quicker. The key there is higher level of certainty, so whether it's testing some sort of package thing, or whether it's like a more scientific way of interviewing people, or something like that, it arrives at the truth quicker, but the key in that phrase is truth, and, "Oh, yes, it happens to be quicker, but we're not charging you less for that. We're actually charging you more because it's more accurate."

Blair: Yes, and I think to your point, as you were describing it, the real advantage to the client is not that it arrives at the truth quicker, that it arrives at the truth with a higher likelihood of certainty. It's either a better-quality outcome or a better likelihood of a high quality outcome. Implied wrapped up in all of that often is speed to those outcomes too but the advantage to the client typically is in the likelihood of high quality or the quality itself.

David: All right, so let me wrap this up and give you all the four things again. Don't sell thinking in units of doing, that's typically hours or days. Don't cut price without getting something for it. Third, don't launch something that you're supremely confident of selling at a massive scale unless it's really going to be high volume. In other words, the same technology that you can use to spread something is also what might commodify it. Then don't use production advantages, like AI is our big example, as reasons to hire you unless you're openly using it to tell a saving story. Have we summarized it correctly there?

Blair: Yes, that's four ways to commodify your offering. Again, to be clear, we do not want you to commodify your offering. These are things that you should think twice about doing. The fifth one that I felt like it went without saying, but here we are saying it is, for God's sakes, if you're pitching your highest value product for free, what are you saying to the marketplace about the value of that product?

David: Thanks, Blair.

Blair: Thanks, David.