Commoditization Case Study

Overview:
Multinational manufacturer overcomes product commoditization through implementation of sustainable growth strategy resulting in 20% increase in domestic revenue.

Problem:
PPE Company X, one of the world’s leading Person Protective Equipment (PPE) companies needed a clear strategy for growth. The company sells garments, glasses, and gloves through distributors to safety managers across all industries and has penetrated the market. However, they struggled with commoditization due to private labeling and international competition from China. Sales had plateaued and low-cost competition depressed margins.
PPE Company X approached Southern Growth Studio to develop a sustainable growth strategy.

Approach:
PPE Company X wanted to move upmarket with premium brands to capture more favorable margins while maintaining a large portion of its base business. Southern Growth Studio uncovered a strategy for moving upmarket in the U.S. and identified a growth strategy to compete internationally.
After studying the market and conducting extensive research with buyers and end users, we identified several critical challenges for PPE Company X:

  • Mid-market brand perception: 52% of distributors rated PPE Company X as a mid-market In the eyes of distributors, PPE Company X was an established player at the mid-market level offering a quality product at a moderate price point
  • Distributor model caused price pressure: The distributor model exacerbates pricing pressure on PPE market players, leading to further commoditization in the Distributors bought according to price to secure their own margins by pitting one manufacturer against another until the price is pushed lower.
  • Distributors hindered growth: Distributors were the market influencers and primary source of information for the buyer. As such, the distributor drove market demand for PPE
  • Commodity product: PPE Company X’s market positioning and value proposition was not well differentiated in the market. Overall, the company came across like a cataloguer of commodities with little brand awareness among end users.

Recommendation:
The Studio recommended that PPE Company X drive demand at the end user level. Because the distributor model was a well-established institution, PPE Company X had to change the demand drivers, resulting in a two-pronged effect. First, the strategy drove cross-over demand for products at the retail channel. And second, by stimulating demand at the end user level, this ultimately created increased pull-through demand via distributors.
Our strategy was validated when we discovered the following opportunities through channel checks, surveys, and ethnographic research:

  • White space in premium category: Our survey and ethnographic interviews confirmed end users were unaware of premium brands in the Of the end users surveyed, 73% were unable to name a premium brand in the protection market.
  • Channel checks confirm end user not price sensitive: Distributors were adamant that the buyer was not concerned with brand and only concerned about price. Our research showed otherwise as many buyers ranked quality and comfort as key buying criteria. Field research with store managers at supply stores like Grainger, further confirmed that price was not a factor because end users were loyal to a particular pair of gloves and many purchased the best quality because it could be billed back to a client
  • Limited end user marketing: The industry was largely focused on the distributors and few competitors were marketing directly to the end By marketing to the end user, PPE Company X could readily create brand awareness and stimulate demand.

Results:
PPE Company experienced a substantial revenue lift as a result of implementing the Southern Growth Studio’s recommendations. Domestically, the firm grew 20%, while the renewed focus on international growth enabled the firm to grow 21% overseas. While most firms struggled during the recession of 2008-2010, PPE Company X experienced growth and market share gains.