Commodity vs. Product. What does each one mean & what’s the difference?
Although often confused and sometimes used interchangeably, especially in the CBD space, the terms commodity and product are very, very different.
A commodity is a raw material used to manufacture a finished good – think of CBD itself as the commodity.
A product, on the other hand, is the finished good sold to consumers – think of this as the tincture of CBD oil.
Both commodities and products are part of the production and manufacturing process—the main difference being where they are in the supply chain.
Commodities are typically in the early stages of production, while products fall at the final stage.
A Closer Look at Commodities
A commodity is a basic good used as an input in the production of goods and services. That means companies use commodities in the manufacturing process to turn them into everyday goods. Commodities are found in the majority of goods that end up in the hands of consumers, including tires, tea, ground beef, orange juice, and clothing.
Commodities can be further broken down into two different categories: hard and soft commodities.
Soft commodities are those that are grown and cannot be stored for extended periods. Examples include coffee, cocoa, orange juice, and CBD. These commodities are a major part of the futures market. Soft commodities futures are more volatile than others because of the unpredictable risks involved, including the weather.
Hard commodities, on the other hand, are mined and extracted, such as oil, natural gas, and precious metals.
There is little difference, if any, among commodities. They are taken from their natural state and, if necessary, brought up to meet minimum marketplace standards. No value is added to the commodity, and all commodities of the same good sell at the same price regardless of the producer.
A Closer Look at Products
A product can be differentiated, and value can be added by the manufacturer and through branding and marketing.
Products are made using commodities and are then put on the market and sold to consumers.
Products, which are also referred to as consumer goods or final goods, are purchased for consumption by the average consumer.
Products are typically classified as either durable or consumable goods. Durable consumer goods, such as appliances, furnishings, and jewelry, are generally long-lasting and purchased infrequently. Consumable goods, which include gas, groceries, and hemp based products, are used quickly or need frequent replacement.
Selling a Commodity is a Race to the Bottom
Too many people entering the hemp & cannabis industry don’t understand the basic differences between commodities & products. When selling commodities, it’s a race to the bottom.
There is little distinction between why your full spectrum 1000mg tincture is any different from your neighbors full spectrum 1000mg tincture. When there are so few distinctions between products, there is only one factor that a customer bases their buying decisions on: Price.
Do you sell your product or service as though it’s a commodity?
If so, you’ve probably discovered that if you don’t know how to sell commodity products the right way, you’re constantly going to be haggling over price with prospects only to be undercut by other sellers.
If there’s a race you don’t ever want to win, it’s a race to the bottom in sales.
A race to the bottom is a situation where all the salespeople in a certain market are trying to beat out one another on price alone, so the value of their offerings rapidly plummet.
The result? Prospects seem to care about nothing but price and will always go with the lowest price on the market.
Stop Treating Your Products Like Commodities
The most straightforward way to stop treating your products like commodities is to add value.
Don’t focus on price as the primary reason a customer should buy from you.
Instead, reflect on all the value you offer to your customers other than your price point.