Commoditization – What it is, definition and concept | 2023

Commoditization is the process by which all products tend to be equalized in the competitive market environment.

In other words, commoditization occurs when customers perceive that the products offered by a company are the same as those of the competition. So your purchase decision is based solely on the price of the product.

Obviously, companies are continually seeking to differentiate themselves from the competition. For this reason, they are frequently applying innovation processes to their products. However, in a short time the competition has equaled or exceeded such products. This occurs because the cost of imitation for competing firms is very close to zero.

Undoubtedly, the competitive situation in the market has changed. Above all, advances in technology have allowed greater access to information and a significant reduction in costs. This allows competitors to quickly imitate, match, and better the products on the market.

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For this reason, all products with the passage of time become commodities. A commodity is considered as a merchandise that does not have any differentiation in the market. The advantage that a company achieves through differentiation becomes a transitory effect. Therefore, it cannot be maintained over time.

Commoditization and Competition

Undoubtedly, commoditization is closely related to the competition process. Due to the fact that, when the products are equalized in the market, the price becomes the main element to make the purchase decision.

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Of course, the more mature the market in which a product competes, the greater the tendency for more competing products to appear. Therefore, they begin to compete with lower prices. Making consumers focus their attention on price and downplay innovation and added value of the product. Therefore, in this competitive environment, a price war occurs and the process of commoditization of products occurs.

Additionally, faced with a price war, some companies end up cutting quality attributes and benefits in their products. What finally makes the products become standardized products within the same category. This makes the consumer stop being loyal to a brand and when buying is guided solely by the price.

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What factors influence the commoditization of products

What factors influence the commoditization of products?

Among the factors that most influence the commoditization process of products we can mention:

1. Globalization

First of all, we can mention globalization. On the one hand, we can say that globalization has allowed many companies to offer their products in a greater number of countries.

Given that, now, companies can reach a large number of countries with their offers, which they would not have even imagined before. Supermarkets are full of brand name products from multinational and transnational companies.

On the other hand, the level of consumption increases globally. Since, companies can reach more consumers who have high purchasing power to demand the products. Therefore, these consumers are increasingly demanding more added values ​​and innovations in products. This drives greater competition in the field of innovation.

2. The speed of innovation processes

Secondly, we find the speed with which innovation processes occur. Innovation has benefited from the advances that have been made in the technological field. Therefore, it is almost impossible to offer a differentiating benefit in a product. Because, in a very short period of time, this benefit is imitated, matched and then surpassed by the competition.

3. The growth and advancement of new forms of communication

Third, we can find the growth and advancement of new and modern forms of communication. Currently, most consumers anywhere in the world have access to computer media. This favors digital communication and they have access to information about offers, benefits and prices of products that are offered anywhere in the world.

Naturally, this makes them more demanding. Therefore, they expect to find more added value and lower prices in the products. What finally ends up achieving that all the products are perceived as equal and considering that the price is the only factor that adds value to them. Since, they do not find a good reason to pay a higher price if everyone has the same benefits according to their perception.

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Recommendations to avoid commoditization

Recommendations to avoid commoditization of products

It is important to mention that every company must be clear that it should not be based on selling a good product. If not, the main objective is to change the perspective that the consumer has about these goods and services.

Indeed, what companies should focus on is generating experiences that are positioned in the mind of the consumer. Working more on the emotional aspect versus the functional aspect of their offers. So, the price ceases to be the element that the consumer takes as a reference to make his purchase decision.

It is recommended that the company:

  • Maintain a strong relationship with the consumer and generate an emotional bond.
  • Have knowledge of the consumer and market competition.
  • Start the change from within, so that each employee who has contact with the consumer offers a memorable experience.
  • Don’t focus on selling products.
  • Focus on your own goals and don’t get carried away by trends.
  • Don’t chase your consumers.
  • Keep in mind any detail, no matter how small, to improve consumer perception.
  • Make a commitment to your customers.

In conclusion, it can be said that the phenomenon of commoditization occurs in the global market. It occurs when products are no longer differentiated by their quality and innovation attributes, but by the price factor. Therefore, companies must focus not on selling products, but on generating emotional bonds with the consumer to achieve their loyalty.

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