Commodity Blues in the Greenhouse: What’s Your Exit Plan?
March 9, 2020 I’m hearing the word commodity a lot lately in the controlled-environment industry. Floriculture growers know the word all too well. Consumers in that market have viewed plants as commodities for many years. As a result, they’re not always willing to pay higher prices for them; they often can’t tell the benefits of one brand over another; and they have become desensitized to plants they think of as akin to widgets pumped out of a factory door en masse.
In a commoditized market, the consumer often doesn’t see much of a difference between one company’s products and those produced by another company. Simply put, it’s all about supply and demand. Supply shortages tend to drive up prices. And when we see supply surpluses, prices plunge.
On the food side, it seems like nearly everything is commoditized in some form, but it’s interesting how consumers’ heightened interest in where their food comes from and how it is grown is leading to some differentiation in the market. And as we know, differentiation is one path that leads out of commoditization.
It’s no wonder floriculture and vegetable growers are running a tight ship these days and looking for efficiencies wherever they can to drive costs down. They’re automating, tweaking production practices, assessing greenhouse workflow, and more. They’re also searching out niche markets.
There’s a lesson here for hemp and cannabis growers producing in a market that has the potential to become commoditized. If that happens, growers would do well to look to their floriculture and vegetable counterparts for advice. Or, if they’re wise, they’ll do it well ahead of time.
One question I’ve pondered lately is how much controlled-environment growers concentrate on the solutions to combat commoditization versus focusing on the problem. Have you considered your escape route? What about shifting your strategy?
An article on IMD.org, authored by Dr. Howard H. Yu, suggested companies re-think what problems their consumers want solved and reframe their products accordingly. In Yu’s words, “[Companies] must be prepared to take a path that they never imagined they would.”
John Quelch, in his Harvard Business Review article, “How to Avoid the Commodity Trap,” listed three ways to escape the clutches of commoditization: Innovate, Bundle, and Segment.
- Innovate with new products that better meet consumer needs.
- Bundle a product with ancillary services.
- Segment by finding less price-sensitive customer segments of niche markets for whom the product is still important.
I would add “Differentiate” to that list. When faced with commoditization, shout your differences from the rooftops. Are your products or services unique? Figure out how to present them in a way that highlights those differences. Do you have a charitable or social cause that is important to you? Tie your products or plants to your cause to make them stand out. Do you use the same old tired phrases to describe yourself and your products as your competitors do? If so, some creativity in this area is in order.
The reality is our markets are facing — or will face — commoditization at some point. But that doesn’t mean we have to wallow in it.
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