Commoditization is a term that has become increasingly commonplace in the business world. It refers to the process of transforming a product or service into a commodity – something that is sold as if it were a generic, interchangeable item, and is usually produced in large quantities. From a business perspective, this has a significant impact on how price, competition, and innovation are managed. The commoditization of products allows for greater efficiency in the marketplace, allowing for longer-term cost savings and increased access to a broader range of products and services. At the same time, commoditization can also diminish choice, creating a situation where consumers have less freedom to choose the product or service they prefer. In this blog post, we will explore the merits and pitfalls of commoditization, and discuss how businesses can navigate this process in pursuit of the most strategic outcomes.
Commodities and Commoditization (from Scarcity to Commodity) Defined and Explained in One Minute
How to address commoditization
By addressing commoditization, you can increase consumer interest in your products by setting them apart from competing items in the same category. Here are some ways to address commoditization:
1. Create a product niche
By focusing on a more specific market niche, you can reduce commoditization and draw in new customers. Niches target specific groups, features or customer preferences. A product’s customer base can be more devoted the more specialized it is, particularly if that niche has few competitors. To maintain your product’s unique position in the market, think about developing a more focused niche. If you sell accounting software, for instance, you might market it as accounting software designed especially for small retail businesses.
2. Introduce a creative pricing structure
Because prices usually separate commoditized products from one another, using creative pricing can be a good way to make your products stand out from the competition. A clever pricing strategy frequently makes it more difficult for customers to directly compare your prices with those of the competition, potentially increasing the likelihood that they will select your product. If you want a more complicated pricing structure, think about bundling various products and services or offering a variety of services together. For instance, you might offer a full course for a set price instead of just offering classes.
3. Customize your advertising to pain points
Because it influences how consumers perceive a brand and its products, marketing is an excellent weapon that companies can use to fight commoditization. Customers may feel more confident that your product is the best option among its rivals if you produce more attractive advertising that focuses on their specific problems. For instance, you might try emphasizing how your bookkeeping software helps small retail businesses solve common financial problems. Directly addressing a customer’s problems through marketing can motivate them to take action and satisfy them.
4. Leverage the market
With changes in the economy, product demands, and quality standards, markets and buyer trends frequently change. It’s crucial to determine any competitive advantages your brand can take advantage of so you can differentiate your products. Find out what advantages your market currently has, such as high demand for certain products or features. Then, to gain an advantage over rivals, you can create products or modify existing ones to include those features. For instance, you might incorporate an inventory feature into your software to take advantage of the market if there is a high demand for inventory management features in bookkeeping software.
5. Listen to feedback
Think about taking into account customer feedback on your goods, services, prices, and features. Customer feedback can assist a business in expanding and discovering what customers find distinctive about its goods or services. If a pattern emerges, you can take action to break it and increase the distinctiveness of your brand. Because of its commitment to providing excellent customer service, a company that values its customers’ opinions might enjoy greater market recognition. Think about requesting customer feedback via email, post-purchase surveys, in-person or phone conversations, or other channels.
What is commoditization?
Certain products in a market may undergo a process known as “commoditization” where they become nearly interchangeable. Since businesses typically set different prices for each of their products, prices are frequently the only way to distinguish commoditized products. These items fall into the same category or type of item, which increases competition between businesses to reach consumers with their goods. This may lead businesses to lower their prices in an effort to draw customers.
Addressing commoditization examples
Here are some instances of how to deal with commoditization across various markets or product categories:
Graphics cards example
G. P. Both Vision Corporation and Vidal Networks manufacture graphics processing units (GPUs) for PCs. Their graphic cards have similar features, refresh rates and technology. G. P. Vision Corporation launches its marketing campaign for its computer gaming graphics cards, concentrating on a specific market segment. Customers respond, purchasing more of G. P. Vision Corporations graphic cards because they want a gaming GPU. The business uses niche advertising to draw in new clients and set itself apart from Vidal Networks.
CircuitBoard PCs and Denver Computing both offer personal computers. CircuitBoard PCs creates computers with options for parts customization, computer enhancement, and pricing for various model options. Denver Computing provides a comparable product, but with proprietary software, few opportunities for customization, and fixed prices. While Denver Computing markets its products to artists and creators and focuses on a specific market of computer users and proprietary software to fight commoditization, CircuitBoard PC markets its products to students and individuals.
Denver Mountains Farms and Greenlife Agro-Collective both produce corn crops. Denver Mountains Farms produces its crops using pesticides and fertilizer, making it comparable to other nearby farms that grow corn in the same way. Genetically modified organisms (GMOs) and pesticides are no longer used by Greenlife Agro-Collective. The business also receives a government organic certification and markets its corn as domestically grown and organic. Greenlife Agro-Collective stands out from other corn suppliers by concentrating on a premium product and a small organic market.
Internet service example
DirectService and Saturna Internet Services both provide high-speed internet. The two businesses become commodities when their products are similar, mirroring each other in terms of features and pricing. DirectService offers a price bundling option where customers can get internet service, two phone lines, and free antivirus software subscriptions in order to fight commoditization. In order to set itself apart from Saturna Internet Services and draw in new clients, DirectService developed a more specialized pricing plan with particular advantages.
What is commoditization example?
Products and services have become commoditized when they only vary in price between different providers. There are numerous instances of this both inside and outside of the technology sector. For instance, a small number of businesses used to produce and market laptops and other types of computer hardware.
What is an example of commodification?
Commoditization occurs when the market perceives products to be substitutable. Two common factors drive this substitutability. The first is the appearance of an industry-standard design or technology. Initially, multiple technologies compete to become the market standard.