What is commodity or commoditization? The key theme of marketing in the future is personalizing your approach by understanding your customers and then delivering your unique value and experience to them. There are many changes in the world that are changing marketing, and commoditization is one of them.
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What is commoditization?
Commoditization refers to the decline in the market value of a product that had great added value when it first entered the market and has become a common commodity. A commodity is a product or item that is interchangeable with others of the same kind, and has a standard market value. Commoditized products have lost the individuality and characteristics of each manufacturer, and customers are left with the same product no matter where they buy it (i.e., the market value is almost the same).
For example, televisions, washing machines, and refrigerators were once advanced products that were out of reach for the average person when they first appeared on the market. However, as a result of competition among many similar products in terms of functionality and price, they are now widely available to the general public, and there is little difference in their basic functions and performance no matter which manufacturer is chosen. Commoditized products may be described as products that have become indispensable to customers’ daily lives.”
What are the impacts of commoditization?
Achieving differentiation is essential to be chosen by customers. In growing markets, differentiation can be achieved through technology, functionality, quality, etc. However, in mature markets, it is not uncommon for companies to have to differentiate themselves through price as products become commoditized. If the pursuit of low prices at the expense of profit margins results in an inability to generate sufficient funds for product development and other costs, it becomes increasingly difficult to escape from price competition.
Breaking away from commoditization
To break away from commoditization, added value other than product performance and functionality, such as experience, scarcity, and brand strength, is needed. It is a good idea to give products and marketing a story to let customers experience excitement, enjoyment, and fun. When customers have a memorable experience, they will spread it through social networking services, which can have a ripple effect. By narrowing down the sales channels and making it difficult for customers to purchase the product, you can also increase the buzz and scarcity of the product. If the product is expensive, you can provide customers with added value by offering detailed after-sales service so that they can purchase the product with peace of mind.
For example, Japanese electronics manufacturer Balmuda broke away from commoditization in the home appliance industry with its first-generation GreenFan, which went on sale in 2010 at a surprisingly high price of around 35,000 yen. Despite the high price, the design and technology of “a fan that reproduces the wind of the natural world” sold so well that production could not keep up with demand. Balmuda is still a leader in the market for high-end fans and has succeeded in differentiating itself from the competition.
The key point when considering value-added is that other companies cannot follow suit. Some companies try to add value with easy novelties, etc., but this is not essential added value. Instead, focus on whether the product is difficult for other companies to imitate, and aim to provide sustainable and unique added value.