Saturday 29 March 2014

Commoditisation of a Product- Who is responsible for it?

Who wants to see their products becoming a commodity? But it happens. Market forces are relentlessly striving to make every other product a commodity product. Reason, it is easy to ‘imitate’ than to innovate - a short term haul to become successful.

Whose mistake is this to see happening, their products becoming commodity products?  I am sure; you will agree with me, it is companies who allow it to happen.

Reason, ‘Product Differentiation’ requires relentless innovation at the end of the sellers - but this needs a different mindset along with resources.

Yes, there are companies who defy the ‘rule’ of commoditisation and continuously, unabatedly try putting in time, efforts and resources to innovate. Result, these companies charge premium and ensure for themselves Sustainability.

Each and every product can be differentiated or allowed to become a commodity, I believe in it. You simply need a different mindset.

As rightly done for his company by Franklin D Raines, Chairman & CEO of Fannie Mae, who later said, ‘People talk about mortgages as commodities. But........ nothing has to be a commodity. Not even mortgages....... Indeed our strategy is to transform mortgages from commodity....... We are not talking about mere branding, we mean creating real differentiation that consumers value.’

Do you see the difference in the above quote? Only of the mindset.

In commoditization, product differentiation is destroyed by competition and therefore buyers refuse to pay any premium. Under pressure to survive, companies immediately try becoming ‘Low-Cost Leader’ and consequently resort to Cost-cutting as the only means. Commonest & easiest actions are taken, as these actions are under the control of companies. Actions like moving production to low-cost locations; trading low margins for hopefully to have higher volume; pleading to customers to ‘let them have some margins’ by sharing their cost structures and overall just focus on ‘Sales’ and not any other thing, including ‘Marketing’ to differentiate and charge premium are resorted to.

Companies have to change their ‘Thought Process’ and must become ‘Problem Solver’ for their customers and not simply a producer of products.  Companies have to integrate their businesses with their customers and work on the problem areas and solve them for their customers.

‘It is not mere having a product that can make you demand premium, but a product has to be wrapped in the ‘Wrapper of Service’ to command premium. I believe in it.

As rightly summed up by a CEO; ‘Companies sell services only when they cannot sell their products.’

Other thing I want to exhort to here,  is that ‘No two customers in any industry have similar needs.’ It thus means principles of Segmentation and Marketing Mix have now reduced importance in today’s business world. Companies have to move away from segmentation and marketing mix to create differentiation.


Every company has ‘genes’ of Differentiation and Commoditization. Choice is of CEOs what they want their company to be known for.

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