Devoted to Managers and those that seek to improve their management skills

Warren Buffett and Secrets of Management - 35

When talking about the difference between a commodity company and a non-commodity company, we need to see that it's not extremely difficult to understand what needs to be done to change the situation.

Warren Buffett said this concerning commodity companies:

'Businesses in industries with both substantial over-capacity and a "commodity" product (undifferentiated in any customer-important way by factors such as performance, appearance, service support etc) are prime candidates for profit troubles.’

Sometimes it seems redundant to continue to talk about differentiation, but the truth is that many companies simply choose to ignore the reality and importance of it. Listen to the continuing announcements by companies about their next foray into a product or service - they simply copy what everybody else is doing.

The major thing that Buffett points out is that the difference doesn't have to be that which is the exact opposite of everybody else. The differences can be things like 'performance, appearance and service support.'

The whole idea is to create within your users something that captures their hearts to the point where they demand that distributors get your products to their outlets. I'm not saying that this is easy to execute, just that it's not hard to understand what's needed to be done.

Think of Coca Cola (KO). What store selling soda wouldn't carry Coca Cola products? Their customers would let them quickly know that they demand that they are carried in the store. The reason is that they are differentiated from all their competitors.

But year after year you can be certain that Coca Cola, and companies like them, can measure and rely upon profits in a consistent way. The reason is differentiation from their competitors and the uniqueness of the product. In other words they're not a commodity.

Other Buffett Resources:

Wisdom of Warren Buffett

Warren Buffett, investor

Warren Buffett: The trouble with being a legend

Warren Buffett: 'I told you so'

Company growth

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