Why Pricing Software Solutions Are Not Commodities

Pricing-focused buyers often categorize products, services, and software as commodities, confidently asserting this perspective during negotiations. It is always striking to hear. But what exactly does it mean to label something a commodity?

A commodity refers to a basic good or raw material that is interchangeable with others of the same type. Commodities are standardized, meaning there is little to no differentiation between producers, and transactions are primarily driven by price rather than unique features or value-added benefits. They are uniform in quality and characteristics, making them easily interchangeable regardless of who produces them. This lack of differentiation means competition revolves almost entirely around price, with minimal emphasis on added value or unique features.

Commodities are typically abundant and easily accessible in markets around the world. They do not require any transformation, customization, or manipulation. They are low effort and low value. Common examples include raw materials such as oil, sand, natural gas, and grains, as well as standardized manufactured goods like generic screws or bulk paper. At their core, commodities lack the distinguishing features that give sellers a competitive advantage beyond price. Understanding this concept is essential for businesses aiming to position their offerings effectively and demonstrate value beyond cost.

Are Software Solutions Commodities? The Truth Behind the Debate

When applied to software, the concept of a commodity refers to solutions that provide basic, standardized functionality without significant differentiation between vendors. These software tools typically perform common tasks that are widely needed but lack unique features or customization options. They offer a “one-size-fits-all” approach, making them interchangeable with similar products on the market. Examples include basic spreadsheet applications, word processors, or generic file storage platforms.

In the context of commodities, software in this category competes primarily on price. Buyers prioritize cost over value-added capabilities, innovation, or strategic benefits, viewing the software as generic and non-differentiating. Additionally, switching costs for these solutions are low, meaning users can transition to a competing product with minimal disruption or retraining, as the tools and functionality are nearly identical.

These software solutions also tend to have minimal strategic impact. They do not play a critical role in driving competitive advantage, improving operational efficiency, or enabling business transformation. Their value lies solely in supporting basic operations, rather than contributing to a company’s broader goals or differentiation.

A generic word processing program could be considered a commodity if it only provides basic functionality like typing, formatting, and saving documents. Such software lacks differentiation, as it does not include advanced features like real-time collaboration, AI-powered suggestions, or integration with specialized workflows.

In contrast, specialized software escapes commoditization by delivering greater value. It offers customization tailored to specific industries or business models, advanced features that exceed basic functionality, seamless integration with larger business ecosystems, and strategic benefits that drive profitability, efficiency, or differentiation.

For instance, CRM software can fall into either category. Basic, generic CRM tools may be seen as commoditized, focusing solely on standard customer record management. However, specialized CRM platforms with advanced analytics, industry-specific tools, and deep integrations are positioned as strategic assets, offering far greater value to businesses.

5 Reasons Pricing Software Shouldn’t Be Treated as a Commodity

Here are five compelling reasons why price management and price optimization software are not commodities:

1. Specialized Expertise in Pricing Analytics

Pricing software incorporates advanced algorithms and analytics tailored to specific industries and business models. Unlike generic tools, these platforms optimize pricing strategies using machine learning, segmentation, and elasticity modeling, which require deep domain expertise. They offer features like dynamic pricing, price elasticity analysis, and promotion optimization that are impossible to replicate with basic tools or generic software.

2. Customization and Scalability

Pricing management solutions are built to address the unique needs of businesses with diverse and complex pricing strategies. From subscription models to B2B contracts, these solutions are customizable and can scale with evolving business requirements. Commodity software typically lacks this flexibility and fails to accommodate intricate pricing rules, approvals, and workflows.

3. Integration with Business Ecosystems

Pricing software integrates seamlessly with ERP, CRM, CPQ, and other business systems, ensuring data consistency and enabling real-time pricing updates. Commodity tools often operate in silos, lacking the robust integration capabilities required for effective pricing execution.

4. Driving Strategic Value, Not Just Automation

Unlike commodity software, which automates basic tasks, pricing software drives strategic decision-making. It identifies margin improvement opportunities, revenue leakage, and competitive threats, helping businesses maximize profitability and market share. It is not just a tool; it is a profitability enabler that provides actionable insights for business leaders.

5. Continuous Innovation and Industry-Specific Features

Pricing software vendors continually invest in R&D, offering industry-specific features such as AI-driven recommendations, customer-specific pricing, and predictive analytics. These innovations differentiate pricing software from generic solutions. Commodities lack this differentiation and innovation, making them less effective for businesses aiming to stay competitive in dynamic markets.

Conclusion

Pricing software goes way beyond just automating tasks. It empowers businesses with custom solutions, actionable insights, and advanced optimization capabilities that generic tools simply cannot compete with. Its adaptability, seamless integration, and innovative features make it a strategic game-changer, not just another standardized tool.

That said, buyers need to do their homework when evaluating pricing software. Look closely at how solutions measure up to the key points we have discussed—science, industry focus, integration into the pricing lifecycle, and advanced analytics. At first glance, pricing software might seem similar, but trust me, they are not all the same.

Let me be clear: pricing software solutions are not commodities. The right choice can make all the difference, and it is worth taking the time to find one that truly aligns with your business needs.

Can Excel’s flexibility compete with AI-driven pricing software? Join our Pricing Pulse webinar on Tuesday, March 11, for a lively debate. Register now!