On Specialization, Service Commoditization, Positioning

Hello there, it's Danilo. As mentioned in my last email, from this week onward our "Adding Value" Newsletter will follow a more structured formula: 1+1+1+1.

Each message includes one idea from me, one quote from others, one number you need to hear, and one question for you to level up your consulting practice.

The replies from the last email were both unexpected and encouraging. Thank you, and hope you enjoy this new format.

Estimated read time: 7 minutes.

Why Services Commoditize, And How To Avoid It?

The expertise and information you need to deliver your services are free - you can’t put it in a cage. As more and more people learn those skills or acquire this information, the supply in the market comes up and the price for it goes down. This is caused by a number of factors:

• Unlicensed profession: Consulting is not a regulated profession. There are no professional standards that limit the number of consultants at any given moment or a labor organization through which people coordinate to sustain minimum fee rates. This means there’s a global supply of competition that is happy to undercut us on price.
• Global market: While it’s true not every consulting service can be delivered remotely, most of them can. This means some of our competitors can live on far less than we can. Of course, if you live in a developed country you have advantages over those who don’t. But the opposite is also true, and they have the cost advantage to offer something similar for less - which will get some buyers interested.
• Education as marketing: Many independent consultants produce and promote expertise-led content. This happens both by choice and necessity, since buyers need to be educated and content marketing works to increase visibility and trust in the market. But as we do that, we end up giving ammunition to our competition and accelerating their learning. It’s a negative but inevitable side-effect.

What's the solution? You avoid service commoditization through specialization.

This happens because it makes your services clearly understandable, memorable to the right prospects, and able to earn trust more readily.

• Understandable: If you narrow your focus sufficiently, you make your services easier to describe and easier to understand. “Helping business grow” doesn’t mean anything. “Increasing customer retention for new e-commerce brands in the food and beverage industry” is extremely clear and requires no other explanation.
• Memorable: Narrowing your focus makes you and your services extremely relevant to a small group of people. In the last example, most of the market would not remember you. But F&B brands with e-commerce operations would instantly connect and remember you’re in the space.
• Able to earn trust quicker: A natural consequence of specializing is that, over time, you will connect with others in your fields or industry. People will start to look at you as an "insider" or a member of their social group. And every human tends to trust members of their social group more than outsiders. This makes it easier for specialists to quickly earn trust.

Also, the narrower your focus the more often you will be exposed to repetitions of similar problems. This gives you an expertise-building advantage that helps you move out of the bottom of the market. Your generalist competitors take much longer to cultivate meaningful expertise.

You avoid service commoditization through specialization.

"The degree to which expertise accompanies any specific segment is coupled inextricably with the possibility of malpractice or causing harm to the general public by exercise of that expertise. At the top of that expertise pile would be a surgeon, perhaps, who navigates years of education and residency and is then certified to practice in a narrow area (...). If that surgeon fails in his duties and violates his public oath, his malpractice insurance carrier will drop his policy, he might be sued, and he might go to jail.

(...) Which professional service is at the bottom - as in, the lowest barrier to entry and the least amount of oversight? Probably marketing, sad to say, or even management consulting in general (...). As much as we like to say that we appreciate that the government is out of our business, they apparently think that consultants can't do enough harm - or good, if you flip that around - to warrant a second glace.

(...) The point here is that the more good or harm that any expert can cause, the more specialized their positioning."

Source: David C. Baker, "The Business Of Expertise"

High growth firms (who average a 9x faster growth rate and 50% higher profitability than the market) are almost 3x more likely to have a strong differentiation - either via specialization or business model innovation.

Source: "Spiraling Up", by Hinge Marketing.

Can you, without any preparation, provide 20 surprising and practical insights that emerge from your current specialization decision?

Example: You are a marketing firm that works with food and beverage brands. Assume I'm smart and know a fair bit of marketing. As you share your insights, will I learn some things about marketing for food and beverage brands that have never occurred to me?

If you can't articulate those insights quickly, you probably don't have that expertise and will struggle to communicate it to a prospect. And if you can't put 20 of them together, your positioning isn't deep enough. You can and should specialize more.