Products that lack distinguishing features tend to eventually decline in price and cause dwindling profit margins. ... Companies may also delay commoditization by marketing products with varying levels of after-purchase services.
What causes a product to become commoditized?
Commoditization occurs when the latest innovations lose their luster and become a part of expected daily life . The result of this process is dropping prices and a rise in competition among those who provide the service or goods.
How does commoditization happen?
Commoditization can be defined as the process by which a product or service that was unique or innovative becomes generic and widely available . As a result, its price drops as competition increases. When several companies offer similar goods, consumers tend to choose the lowest price tag.
How do you avoid commoditization?
- Create a third market place.
- Target the right customers.
- Add a dose of expertise.
- Don’t keep them (customers) waiting.
- Amp up the personal touch.
Is commoditization good or bad?
Commoditization is a process in which goods which have unique features becomes simple commodities and can be interchanged easily with other alternatives available in the market. ... Commoditization is the biggest challenge for those businesses whose products don’t have unique features.
What is commodify mean?
transitive verb. : to turn (something, such as an intrinsic value or a work of art) into a commodity attempts to commodify the water supply.
What is commoditization risk?
Commoditization Challenges Businesses
Products that lack distinguishing features tend to eventually decline in price and cause dwindling profit margins . ... Companies may also delay commoditization by marketing products with varying levels of after-purchase services.
What’s the difference between commoditization and commodification?
One way to summarize the difference is that commoditization is about proprietary things becoming generic , whereas commodification is about nonsaleable things becoming saleable.
Why is high tech commoditization accelerating?
The popular narrative is that three main factors are driving this: (1) blatant copying of intellectual property (IP), (2) governments pressuring companies to share technology in exchange for rights to do business, and (3) normal knowledge spillover as workers move from multinationals to local companies.
What does it mean for something to become a commodity?
Commoditization refers to the process of making something into a commodity. ... When a financial contract such as a mortgage becomes commoditized, the contract becomes more liquid because it can be bought and sold readily.
What is the commoditization trap?
The Commoditization Trap is the situation businesses find themselves in when their focus is mainly on the product or service they offer instead of a quantifiable difference between their product and their competitor’s.
How do you escape a commodity trap?
- Innovate Your Value. Get out to meet your customers with intent and listen more closely to their concerns. ...
- Have the Right Pricing Structure In Place. Look at how you’re setting your pricing. ...
- Target the right customers. ...
- Compensate for the Behavior You Want from Your Employees.
What is commodity magnet?
In 1992, Rangan and Bowman wrote their Harvard Business Review article on the commodity magnet: a powerful virtual magnet which, as a result of growing competition, brings along a decrease in your differentiating capacities and an increase in your cost to serve, and puts pressure on your sales price and margin.
What are the bad effects of commoditization?
Commoditization is bad because it erodes your ability to charge a healthy, profitable fee for what you make or do . When everything looks the same to your buyers, they’ll generally settle on whichever solution or product is the cheapest.
What are the benefits of commodification?
In conclusion, commodification brings advantages in the business environment , and provides opportunities for developing new products and services which meet the increasing demands of the customers for their changing needs and wishes.
What is tourism commodification?
In terms of tourism, presentation of local values such as local traditions, rituals, festivals, or handicrafts causes the commodification (Gotham, 2002; Mbaiwa, 2011). Local values presented to tourism experience are commoditized by mechanic and social reproduction.
