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No Such
Thing
By Michael Alan Hamlin
October 29, 2001
"There's no such thing as a commodity," Philip
Kotler told executives in Hong Kong, Manila, and Shanghai last week.
Mr. Kotler, who is credited with introducing scientific rigor to
marketing, suggested that executives who believe they are selling
a commodity - whether a product or service - are simply guilty of
failing to differentiate their offering from their competitors'.
The commodity defense is used by underperforming executives as an
excuse for competing on price, instead of value.
Competing on price is the obvious, and easiest, strategy
in a crowded marketplace. Long-term, of course, it's usually the
riskiest as well. There are exceptions, or at least apparent ones.
Dell Computer is an example often cited by Prof. Kotler. While Dell
does compete on price, the final cost of its product may not be
comparable to its rivals. But then, the product itself defies direct
comparison. That's because Dell offers its customers the attractive
alternative of designing their machines to fit their particular
needs and desires.
It's able to do that for reasons you're probably familiar
with, but I'll briefly repeat them anyway. First, Dell has mastered
the art and the science of supply chain management despite the custom
options available to customers. Inventory costs are controlled in
a very dramatic way, reducing the financial resources tied up in
parts sitting on shelves and boxes. Second, it outsources non-core
processes, like distribution. Third, it sells 80 percent of its
product over the Internet and the phone, which means it doesn't
have to spend money managing distributor and retail networks.
This enables Dell to market its product on the basis
of attractive factors like convenience and personalized product
offerings instead of just price. Most observers give Dell credit
for streamlining the supply chain in order to offer its products
at a lower price compared to its competitors. But just as fundamental
to the profitability of its business model is the personal attention
each buyer gets, something its competitors don't, and can't so far,
emulate.
That part of Dell's business model is what differentiates
Dell from its competitors in the view of its customers, who probably
don't think much about supply chain efficiency. While cost is important
to them, anyone can offer low cost. But not everyone can offer reasonable
prices and personalized services. Only Dell can do that, and that's
why Dell is the world's most profitable retailer of PCs for consumers
and business.
Stewart Alsop recently wrote in his Fortune magazine
column that computer makers are unable to offer differentiated products
because they all rely on the same operating system, which ultimately
determines what hardware and software works on a computer. What
the analyst assumed in making his argument is that adding features
to the machine itself is the only way to differentiate a product
in a way that will make it more appealing to customers than its
rivals. It's not.
But the analyst was also wrong when he argued that
computer manufacturers can't introduce meaningful innovations to
the machines themselves. The laptop I'm typing this on at roughly
30,000 feet is a good example. It's a Sony Vaio (Incidentally, I've
never owned a Dell computer, although I did have use of a laptop
once.). Prior to purchasing this Vaio about a year ago, I used what
I consider to be the elite laptop of all laptops (whose brand I
won't mention).
Two hard disk crashes and one motherboard burnout later,
I was ready to look at alternatives. It certainly wasn't the color
of the Vaio that attracted my attention (For the record, Sony is
not a client.). It's a combination of purple and grayish purple.
That color scheme has made the Vaio, anecdotal evidence suggests,
unpopular with corporate purchasing departments. Despite that ignominy,
this laptop in its various configurations is increasingly popular
among executives.
Why so? While I can't speak for other users (although
I was brought to the airport by a Beijing-based consultant who owns
two), size - or the lack of size, and bulk - is a major factor.
All versions are relatively compact, and one folds up to the size
of a keyboard, making it not that much larger than some handheld
computers. And it comes with a video camera.
Compatibility with Sony's digital video and still cameras
is another big factor. While the proprietary flash memory cards
Sony insists on using aren't compatible with other computers or
even PCMCIA slots (you can buy an adaptor for both laptops and desktops),
they are small, and universal among Sony's wide range of products.
Transferring those important product shots, photos with clients,
and even video is a snap. Even better for executives on the run
to presentations, Vaio's come bundled with Adobe Premiere, a first-rate
video-editing package. And the Vaio has more video and USP ports
than most users will ever think of using.
So while it's not exactly corporate, it's a very practical
purchase. But the bottom line is not that Dell and Sony (which has
lots of serious problems unrelated to its Vaio line, itself a problem
in its early days) have found distinctive ways to show that commodities
don't exist, except in the minds of uninspired managers. And while
this might seem pretty basic to you, how many other companies have
demonstrated the degree of innovation that Dell and the Vaio team
have?
More to the point, has your company demonstrated, or
will it, the will and innovation to distinguish its "uncommodity"
from the competition?
(Mr. Hamlin is managing director of the consultancy TeamAsia
and the author of three books on Asian economies and managing in
Asia. His latest book is Marketing Places Asia, which
is coauthored. His e-mail address is mahamlin@teamasia.com.ph.
If you use a Smart/Talk N Text GSM user, you can text a message
to Mr. Hamlin's mailbox by typing the keyword mikehamlin and sending
it to 200.)
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