You may think you know exactly what commoditization looks like: increasing volumes, decreasing margins. But there are other, subtler signs (see "Are You Selling a Commodity . . . Yet?" below), and spotting them is only the beginning. As Patrevito points out, Booklet Binding offered its customers state-of-the-art equipment and further distinguished itself from competitors by hiring salespeople, a move most binderies still disdain. "We've been here since 1941, so I guess people know who we are," sniffs Peter Broustis, president of Bee Bindery Inc., in Chicago. Beyond that, Patrevito and Kosowski were always looking for ways to help customers, typically small printers, make smarter business decisions. Want to save $5,000 on packaging? they'd ask. Try using big, telescopic cartons instead of individual boxes.
That kind of informal advice may have been as valuable to their customers as the fact that Booklet Binding could perfect-bind a book as thin as one-sixteenth of an inch, meaning that a scrawny annual report could be spared unsightly staples. But until dissolving profits forced them to look hard, the company's owners settled for thinking they knew what mattered most to customers. It never occurred to them that the surest grip any company can have on its customers may originate outside the specific products or services it touts. In most modern-day markets, where laser-fast competition breeds spontaneous commoditization, "expertise is the better mousetrap," claims Carey, who studies differentiation strategies. "Rather than see you because of what you sell, customers see you because of what you know."
If that sounds abstract, imagine that Booklet Binding had been in the business of selling an obvious commodity from day one -- eggs, say.
In order to pitch the spherical product on anything other than price, a salesperson would have to get beyond the egg's universally appreciated properties. Will you be making an omelette, baking a cake, or throwing one against the wall? It may turn out that fast turnaround matters, or that minimizing breakage is important. "With any commodity, you've got to move the discussion toward how the customer is going to use it, and therefore toward what the important attributes would be," advises Jim Morrissey, president of Market Share Catalysts, a sales consulting firm in Wayland, Mass. "The value added is not in the product anymore; it's in the relationship between the sales rep and the customer."
Booklet Binding wasn't selling eggs, but it may as well have been. After years of scrambling to build capability and gain marketplace recognition, the owners found themselves with less profit than they'd wanted -- though the figure was on the high end of the industry's typical 2% to 5% pretax net -- and with no prospects for upping it. "My competitors all do the same thing to the product," says Patrevito.
As for price -- well, every industry breeds start-ups that are happy to eat profits, hoping to fatten their market share. Three years ago, when Denver Worker and his brothers Dean and Dale started 3-D Binding Inc., in Orland Park, Ill., they undercut Booklet Binding by 20%. "We're just three guys who own our own equipment, and we're trying to make a living for ourselves," says Worker, who had been a shift supervisor at Booklet. Isn't everyone? "The simple things -- some folding, some gluing -- everybody can do," says Jack Rickard, president of Rickard Circular Folding, a Chicago bindery. "The market for those sorts of things works like it does for grain or corn." In other words: throw your bid into the hopper and hope it gets the nod. "I'd give customers the quote, and then I'd ask, 'How does the price look?" recalls Bill Chalifoux, a salesperson at Booklet Binding. "If it looked OK, great. If not, I'd ask, 'Where do we have to be?"
That kind of price jockeying left preserving profit up to the owners of Booklet Binding, who did so by finding what Kosowski refers to as "little tricks" to trim costs. They hired managers with little experience. They hired machine operators with no previous job experience at all. By the time they hired Landiak, in April 1993, their inventory of magical moves was depleted; there was nothing imaginative about cutting bodies. "I was just tired of it all," says Patrevito.
But the energetic Landiak, who has trained himself to sleep just five hours a night, saw a company caught up in what he -- among others -- regards as the biggest challenge facing nearly every business, from cellular-phone makers to chopstick suppliers: the struggle to offer customers a consistent reason to buy from this business in an economy in which no tangible advantage can last. As Carey explains, "If management doesn't take a proactive role in establishing a strategy that is viable for the sales staff, then the sales staff will be desperate and at their door, begging for help" -- as it was, in fact, at Booklet Binding. In The Discipline of Market Leaders, a popular 1995 business book, authors Michael Treacy and Fred Wiersema argue that now more than ever, every company must "find the unique value that it alone can deliver to a chosen market" and identify exactly how it will deliver "continually improving value" to customers.
In the absence of staking out such defensible territory, a company like Booklet Binding gets pushed into a wide-open field where there are so many competitors -- popping up on so many fronts -- that it can't possibly safeguard its profitability. The management at Booklet Binding was lucky; because of the heavy capital investment required and the industry's dirty-shirt aura, the competitive market shift wasn't lightning fast. But fiercer competitors inevitably pop up. Frank Puisis, a former certified public accountant, bought a competing bindery with a partner five years ago. "The old binderies are all ke-klunk, ke-klunk, ke-klunk," says Puisis. "Successful businesses differentiate themselves."
