The value of the Product

The most profitable long term strategy

la valorización de un producto contra su reducción de costes

I think we’ve all once heard something like this: “I buy what comes with the lowest offer… at the end of the day, the product it is the same”. Nowadays such phrases are very common in general, but especially in the hardware sector and unfortunately are the symptom of one of the most dangerous threats flying over the sector, which is commoditization, let me say this threat affects to all actors in the value chain and not only to the manufacturers.

The importance of a product beyond its price

The commoditization that many products are suffering makes users do not perceive anything but the price, thinking that the products are very similar, which leads many manufacturers to sacrifice product quality for the benefit of the cost, fuelling a spiral of value destruction.This is a universal trend, which is not new. In my opinion it always has been there, but now the difference is that everything happens faster and the effect can be quickly visible especially in a sector like the hardware with relatively mature products.

But this general threat is an opportunity for those manufacturers who want to bet on the value of the product. In other words, the product creates value so for a company, paying attention to the product, trying to make it better for the end user can be a more sustainable competitive strategy rather than, entering into the spiral of trivialization of the product.

An example: price vs. value

To give an example, let´s think in two manufacturers of an apparently simple tool like sledge hammers for construction. The first one, has thought that can manufacture the three kilos sledge hammer but removing about 500 grams of steel, and leaving it at 2.5 kg, but as no one will notice such “little” change… you lower the price just 5% and sells it to ironmonger as more “competitive”, the second company has chosen to improve the heat treatment of head and automate the process of union of head and handle improving durability at the same price for the end user. It is not a joke, this is a real example and I can say that the second company is bigger and more profitable than the first.

In the first case we see a devaluation of the tool driven by the manufacturing company itself, and we see that the another alternative is making a tool that offers a better solution to the end user problem without increasing the cost. But, is the improvement possible for the second company because they have more resources while the first company, perhaps a smaller one, is forced to compete using other ways? I do not think so. In my opinion, many improvements in the value of a product don´t necessarily require huge investment. Around a product, follow the example of the sledge hammer, I think they can always improvethings in the handle design, materials or even improved transportation, or packaging, and all of that can be done without large investments just thinking about how to make things easier for your customers.

In conclusion, it is worth betting on the value of the product, and especially if you are a manufacturer, then, in my opinion this is the most profitable long term strategy, let´s remember that nothing is absolutely perfect.