As the conversation progressed, it became evident that the drug company’s value equation for packaging included a number of considerations besides price. After accounting for variable costs, such as inventory, breakage, logistics and line efficiencies, the plastic bottles would be a better value even at a higher price. The moral: There is no such thing as a true commodity.

While suppliers should make their value propositions transparent to customers, customers are also realizing that it is in their interest to make their value equations transparent to suppliers. I spoke with a purchasing executive from a petroleum company about reverse auctions. Suppliers tend to hate them because large buyers use auctions to beat competing suppliers down on price, leaving the winners with a Pyrrhic victory. The purchasing executive said, "We provide all bidders in our reverse auction with the formula we use to weigh variables among competing suppliers. With this information, suppliers are able to make trade-offs among price and nonprice variables as they participate in the auction." In that case, transparency is good for suppliers who have superior value propositions, even if their prices aren’t the lowest.

The key, then, to profiting from transparency is to sell on value, which involves three key steps.

1. Understand what customers really value. The pharmaceutical company mentioned really cared about the total cost of producing, packaging, shipping and promoting their drugs. The CEO of Freightliner, a truck manufacturer, noted that customers don’t want to just buy trucks. They care about "keeping ’em rolling." That insight spurred Freightliner to offer a diagnostics service for its trucks that predicts breakdowns, and a speedier process for delivering parts. You may find that the product cost is a small component of the customer’s total costs, and that price is only one of many variables that customers should consider.

2. Develop flexible market offerings. No company can satisfy all customer segments with the same offering. To cater to different segments, companies need to create what Jim Andersen, my colleague, calls "flexible market offerings." These are bundles of products, services and information that customers can configure and customize to suit their priorities. I often find that companies bundle services with their products as value-added services. The problem is that not all customers value all the services. A software customer who has a strong IT organization may not value support as much as another customer who relies more on outsourced IT support. Allow customers to choose the services they value and to pay for only what they use.