How to Break Out of Single-digit Growth in a Commodity Market
In this interview, Joseph Lewin from CADENAS PARTsolutions speaks with Ravi Kyasaram. Ravi was formerly responsible for growth strategy of the Cold Chain division at Emerson.
Ravi is an engineer turned growth strategist with an extensive background in leadership at multiple global companies.
Is it possible for component manufacturers to break out of single-digit growth in a commodity-driven market?
Many components are seen as commodities, even when they have specific differentiators. If the market generally considers a product a commodity, it’s hard to break out of that mold. The cold chain industry is no exception.
Breaking out of single-digit growth takes creativity. Doing business as usual will continually produce diminishing results. Let’s get out of the box!
Here are two ways to achieve double-digit growth in a commodity market:
- Serving different needs in the value chain
- Solution selling
We will cover these in-depth later.
First, let’s set the stage before Ravi comes onboard at Emerson.
What is the cold chain industry?
Ravi’s examples are from his experience in the cold chain division at Emerson, but the principles apply to any commodity marketer, especially for component manufacturers.
So what does cold chain mean? The cold chain industry focuses on refrigeration in stationary applications like refrigerator units and transportation like refrigerated trucks, ships, and containers.
The two primary cold chain industries are food service and life sciences, although there are manufacturing applications too.
There are two essential technologies in cold chain applications: a compressor and a controller.
The compressor is the component behind refrigeration, and the controller is the human-to-machine interface that enables setting and programming temperatures, etc.
Emerson already moved up the value chain from solely providing compressors to offering controllers as well. This enabled them to increase growth by providing multiple cold chain products.
By offering controllers, Emerson effectively moved up the value chain and secured more of the wallet share of their customers by serving them more effectively.
How do lessons from the cold chain industry apply to other component markets?
The cold chain industry isn’t a “sexy” industry. It’s a vital industry, but all of the components are behind the scenes. Manufacturers in the cold chain space, like many component manufacturers in other industries, don’t get much press attention, or attention at all for that matter.
Here are a few of the challenges facing the cold chain industry that will be familiar to most component manufacturers:
- Tight margins
- A competitive landscape
These factors lead to the commoditization of the primary components like compressors. Even when there is differentiation, most end-users and even design engineers don’t know the difference between similar products from various manufacturers.
For companies to break out of commoditization, they must find creative ways to increase the value of their products.
What challenges was Emerson trying to solve?
- Growth stagnation
- Lack of recognition by end customers
- Need for differentiation
Growth in the cold chain division at Emerson was stagnating around 2.5%-3% per year. They have a deep customer and distributor base, but they were hitting a level of market saturation with their compressors and controllers.
Many pieces of restaurant equipment run on Emerson parts. The problem is the end-users are familiar with the brand of the equipment manufacturer, not the Emerson brand of compressors and controllers inside. If Emerson compressors were replaced by a competitor, most end-users would never know.
Tight industry regulations mean products must adhere to guidelines that increase competition and decrease differentiation between products. Component manufacturers, like Emerson, must get creative to differentiate outside of the typical features, benefits, price, and availability.
How can industrial marketers at component manufacturing companies help achieve double-digit growth, get visibility with end-users, and differentiate commodity parts?
Let’s learn from Ravi’s experience.
How did Ravi determine his course of action?
Ravi was brought on at Emerson to help with strategic growth. His role was to help Emerson hit double-digit growth in cold chain division by solving stagnation, end-user visibility, and differentiation.
Most marketers focus their efforts on internal resources to solve a problem. They speak with salespeople, engineers, operations staff, and finance to determine where the lowest hanging fruit is to position their products and increase profitability.
Ravi didn’t start there. He decided to focus his attention on the end-user of Emerson’s customers’ products. In other words, Ravi sought out his customers’ customers.
It was important to determine the challenges end-users face daily to find opportunities to expand Emerson’s offerings. Many of Emerson’s compressors are spec’d into products in quick-service restaurants like McDonald’s.
Again, it’s natural for marketers to seek out high-level decision-makers or equipment purchasers when doing customer research.
Ravi had a different idea. He focused on the staff at quick-service restaurants. He wanted to know the challenges they faced daily to serve them more effectively.
Ravi parked his car a mile away from a Mcdonald’s restaurant and worked in the kitchen for three weeks. This level of field research revealed new solutions that Emerson could offer to quick-service restaurants.
What did Ravi discover working at McDonald’s for three weeks?
Ravi observed workers manually tracking freezer and fridge temps every few hours. Not only was this an inefficient use of employee time, but it also created higher risks for food safety.
If a compressor goes out or a fridge door is left open, managers often won’t know there is an issue until the food has spoiled. Not only does the restaurant lose the food in this scenario, but they also incur opportunity costs when they can’t serve customers menu items due to spoilage.
What strategies help break out of single-digit growth?
- Expanding to deeper solutions for the end-user
- Reporting to solve problems with food loss and machine downtime
- Creating solutions that expand to new offerings and have pull-through for current products
- Getting brand recognition from end-users vs. specifiers only
Ravi and his team added intelligence to their compressors and controllers. By adding simple hardware to the compressor/controller combo, they could implement real-time reporting and offer it as an additional service to the end-user.
By turning their commodity components into smart devices, they were able to differentiate their products, move up in the value chain, offer additional services, and all but guarantee the placement of their compressors in future orders.
The focus on the end-user is key. The conversations Emerson has with their customers’ customers about ways to solve underlying challenges will expand the adoption of Emerson products in the future.
These strategies are not limited to compressors and the cold chain industry. Most commodity components have avenues for differentiation if we are willing to take a creative approach.
Ravi’s practical recommendations for industrial marketers at component manufacturing companies:
- Customer advocacy
- Be mindful of business performance
Ravi Kyasaram said, “I think it is so important, even if you’re in the world of manufacturing components, to find the time to spend one or two weeks partnering beyond the manufacturing shop floor. Find an opportunity to go stand in the shoes of your customers. If not anything else, you will earn so much more respect because they will have seen you live their life. So it just elevates the relationship.”
He elaborated that customer advocacy helps find areas for growth like adding intelligence, finding M&A opportunities, etc.
Ravi also emphasized the importance of being passionate about your own business:
“The other element is don’t just be a passionate customer advocate, also be passionate about your own business and about your own business model.”
“How good are your sales? What is the quality of your margins? And always try to look at a tipping scale and see how you’re performing. And if there are some adjustments that you need to make, go ahead and do them, but just be conscious of both these things: how’s your business performing and be a strong customer advocate.”
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