In financial services, asset management firms that used to earn 120 basis points on are now earning eight, if they’re lucky. Commoditization is squeezing the industry.
In retailing, consumers only seem to care about price. They gather information many places, but only buy from the vendor with the narrowest margins.
In industry after industry, previously healthy profit margins are being squeezed and then squeezed again.
There’s a simple explanation for this, but for reasons I don’t fully understand, no one wants to hear it:
To avoid price competition, you have to treat different customers differently.
In financial services, this means understanding what makes one institutional investor different from all the others. It means maintaining consistent coverage over many years, instead of swapping account managers every year or two. Financial services executives counter that this logic doesn’t work in their industry, that all investors care about is performance. To this I counter: how would you know, you have never made a concerted, consistent effort to convince each client that their needs are unique.
In retailing, this means merchants have to do more than just sell the same products as their competitors. It means searching far and wide for differences between customers, and for ways to profit from those differences.
You either treat customers differently, or your margins shrink.
In every industry, there is room for only one or perhaps two companies to win the “compete on price” sweepstakes. You have to be very, very large and efficient to win this battle, and the vast majority of businesses cannot succeed in this game.
But if you treat customers like interchangeable, anonymous strangers, price is the only game in town.

The alternative is to learn – and remember – the differences between your customers. It means remembering information for customers, instead of just about them. It means using this knowledge to make loyalty more convenient than disloyalty.
Above all else, you must base your actions and decisions on what each customer wants, not on the latest reorganization scheme dreamed up by your management team, who are – you guessed it – spooked by shrinking profit margins.
Like I said before, firms have a hard time taking this advice. They would prefer to do almost anything other than become obsessed with what’s best for each customer. That seems like an awful lot of work, and it goes against the grain of every performance metric and job description in their organization. It is so much easier to just yell at the sales force, reorganize again, or both.
But the stark truth is that nothing else will stop margins from eroding further. The only effective strategy is to find the differences between each customer, and redesign your business to accommodate these differences in ways that benefit each customer.
One last, vital, point: your accommodations can’t be superficial. They have to be significant enough to create economic value. Translation: they have to be worth enough to the customer that he or she is willing to pay more to get the added service levels your firm provides.