by Adam Juda on Tuesday, June 9, 2015
It should go without saying that some companies have more pricing power than others. They can charge premium rates because of their reputations. Whether it's a reputation for consistency, quality, variety or some other trait, they are known for being something.
Let's play a little game. Here's a picture I took today. See if you can guess which company enjoys the least pricing power and probably provides the least exceptional offerings. Legal disclaimer: I've never purchased a product or service from any of the companies pictured, so my statements are based upon suspicion rather than hard evidence.
If you guessed the store with the sign that reads Dentist, you're right! No business can build a reputation for anything without a distinct name. That's why generic products sell for less than name-brand products. That's why companies are so litigious about protecting their trademarks. Should a firm like Xerox lose the rights to its name, it would lose an enormous amount of goodwill tied to the reputation it has built at great expense.
When a company advertises itself as a commodity, it implicitly states that there is nothing particularly impressive or noteworthy about its offerings. Not only that, but it doesn't think it's even worth the effort to try to convince anyone to the contrary (dishonest signaling).
One of Shakespeare's most famous lines is a rose by any other name would smell as sweet. While I would certainly defer to Mr. Shakespeare on matters of playwriting, I must take issue with this quotation. I would argue that a rose would not smell as sweet - one need only look to the prune to learn that names can cause consumers to change their opinions quite quickly.
While many companies understand the importance of "building a brand," this wisdom is often lost on individuals. Do you think that Guido van Rossum describes himself as a software engineer or as the creator of the Python programming language? Do you think that Linus Torvalds tells folks that he's a programmer, or do you think he says that he's "the guy behind the Linux kernel"? While most folks are unable to lay claim to such impressive backstories, they would be well served to build their reputations for accomplishing something.
I describe myself as the guy who wrote the book on software pricing. Sure, it's a small claim to be sure, but it sets me apart from almost everyone in terms of expertise and area of focus. I'm not just a guy. I'm that guy. Mark Twain, in A Connecticut Yankee in King Arthur's Court, explained this concept best when his main character received a title and excitedly exclaimed
there were very few the's, and I was one of them.
Any person describing himself as a programmer, an engineer or even a dentist is setting himself up as a commodity that can be easily replaced. As long as you're going to go to the trouble of selling something, be unique. It will allow you to charge more and enable you to attract a better tier of clients.