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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