Introduction
In our previous blog in this series, we introduced the notion that overcoming the inevitable – some degree of commoditization – is not only possible but achievable. We at McMann & Ransford have been solving this challenge for over 30 years with clients across many industries. Therefore, we thought it may be interesting to share with you some strategies that organizations are taking in an industry that is literally commoditized – the metals market that includes companies that buy and/or sell steel, aluminum, carbon, and other metals in North America.
The second premise of our market study we were seeking to prove or disprove:
Premise #2
Despite being a commodity, we hypothesized that the metal industry operates similarly to all other industries we have worked in over the years, and there are opportunities to differentiate and win business based on factors other than Price, Availability of product, and personal Relationships (for the remainder of this document, we will call these 3 levers PAR for short).
Based on our research, the answer to the key question, “Does the industry rely on levers other than PAR to provide differentiation?” is Absolutely….
From our experience with this industry and many others, we appreciate that the PAR levers are still critical and, without them (particularly Price and Availability), nothing else matters. However, we were seeking to find out if in the metals industry PAR has become simply an “invitation to the game,” and that winning the game requires companies regardless of industry to go beyond PAR.
In fact, one thing that became clear very quickly is that some of the best practices that are being employed by the most successful and fastest growing companies in this industry are similar to those that corporate enterprises in other industries have used to dominate their markets and resist competition. A couple of examples include:
1. Adopting techniques for understanding their customers, and their customer’s strategic objectives. In other words, become invested and embedded into their customer’s business.
2. Taking on some of the burden of helping their customers more successfully achieve the outcome they are striving towards – even if it is not directly related to the Seller’s existing relationship/product
To emphasize these points, below is a quote from a Buyer we interviewed.
“As a manufacturer of oil storage tanks, our business is dramatically impacted by any significant changes in crude prices, <our Seller> singlehandedly saved our business during the oil market downturn because they understood that risk we had, helped us conduct a financial analysis of how we could reduce our CapEx without impacting throughput. This allowed us to be more flexible during the downturn, without losing our employees or impacting our ability to meet our customers’ demand once it increased again.”
Do you think the Seller mentioned in this quote has earned a little more freedom to charge more or ask for a greater percentage of the Buyer’s total metal purchases? Of course, they have! Many Sellers might think that they cannot replicate this, but we also spoke to this Seller, and their only cost associated with this was the repurposing of an internal financial tool and a little bit of time and focus from someone who had worked with oil tank manufacturers for years.
In our next blog, we will share with you a summary of the two strategies that are most prevalent and/or working most successfully in the metals industry.
If you are interested in the complete research report, please visit Overcoming Commoditization Through Intimacy | McMann & Ransford or reach out to Mark Slotnik and Jackie McMann for additional information.