COMMODITIZATION OF GOODS AND SERVICES MEANING-Commoditization is the dilution of a market sector's internal differentiation in favour of a mass market where

price alone determines consumer behaviour. It is the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. The term commodity is used by economists to indicate an "undifferentiated good or service". Commoditization is the movement of a market from differentiated to undifferentiated price competition and from monopolistic to perfect competition. Example -A commodity like butter or wheat - there isn't much difference between butter or wheat from vendor A to vendor B. VISIBLE SIGNS/SYMPTONS: 1. Increasing competition-As industries mature, barriers to market entry gradually erode, competition intensifies, and the market becomes saturated, forcing prices downward. 2. Prevalence of me-too products and services-A product that is very similar to products manufactured by other companies and already on the market .Example-A toy manufacturer observes the immense popularity of a competitor's product and decides to produce its own version that is virtually identical. 3. The decreasing desire on the customers part to look at new options or features-Customers stop taking interest in innovations in the market for the particular product when they start realizing that its market has reached its saturation point. 4. Increasing pressures on margins-When the producers observe the decreasing differentiation between their product and the competitor's, they resort to heavy price reduction leading to price wars and thus, pressurizing their profit margins. 5. An increasing preference for customers to select on the basis of price and little else-When proliferation of products within a market sector reaches the commoditization point, the perceived distinction between brands and varieties vanishes altogether, and customers base their purchasing decisions solely on price. 6. A reluctance for customers to pay for anything they consider unnecessary-As a desperate measure producers keep adding additional benefits in their product which many of the consumers find unnecessary. CORE CAUSES: 1. Globalization-No matter what you produce, or what service you provide, there are likely to be individuals or firms somewhere in the world that can and will do the work for less. This is the pressure that globalization generates to commoditize products and services. 2. Innovation-Innovation of products is becoming faster now with new products being developed and copied by other quickly. Focus has to be shifted on process innovation in order to gain competitive advantage. 3. Advancement in technology-Number of new products that enter the consumer & industrial markets on a daily basis continues to grow, as does the speed with which these products are developed, tested, & manufactured. 4. Lack of connecting unique values to customers and no differential advantage-Lack of clear differentiation between competing products in the marketplace. DOs: 1. Search for New Markets for the Existing Product-An established product in the market place can be tweaked or targeted to a different customer segment, as a strategy to earn more revenue for the firm. 2. Search for New Products for the Existing Market-When a firm creates new products, it can gain new customers for these products. Hence, new product development can be a crucial business development strategy for firms to stay competitive. 3. Reverse the Business Strategy to Increase revenue-A company may need to consider changing the way it is currently selling a product or service to become just the reverse of what it is known for selling. If a company is viewed as a product provider, but it really sells more services that support the products, perhaps it should be positioned as a service solution provider. In either case, companies need to evaluate how they can increase their revenues by providing the exact opposite of what the business may be known for selling. 4. Be the authority in your field-Learn your trade really well. Invest in your education. And establish yourself as the authority in your field by publishing books or speaking in public. Your authority status becomes the special value to your customers. 5. Keep the Product Quality High-When commoditization of products or services starts to happen, the natural reaction is to lower quality standards for the product by reducing bill of material costs or lowering the depth of the service performed for the customer. A better way is to look for process improvements related to how the service is provided or reducing product burden costs that are ancillary to the products production.

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Educate your customers-While you yourself get educated further about your trade, educate your customers. For instance, if I were to sell soaps, one of the most commoditized products, I will make a presentation about the various ingredients that go into a soap, how each influences your skin, the negative effects of the additives commonly used in supermarket soaps on you. Then I will sell soaps made in the old fashioned way with only good ingredients at premium price. Personalize the service-Make your product or service one of a kind by adding personalization. Narrow down your target market-Customers will be attracted by delivering specific value to the target market wants. This doesnt mean you reject customers who dont match the description of your target market. This may also make you the first or best known authority in this tightly defined market. Get empowered by synergy-You can offer additional value by teaming up with other businesses. The key is to come up with a winning combination. Adding entertainment or comfort factor is an easy way of synergy. This is why restaurants host live music. Its not just somewhere to eat, you get to hear music at that restaurant!

DONTs: 1. Dont be the low price leader-Battle to have lowest price shortens the products or services life cycle, while creating several negative issues within business 2. Dont lower the quality of the products- Look for process improvements related to how the service is provided or reducing product burden costs that are ancillary to the products production. 3. Dont experiment with unproven advertising formats-Re-evaluate marketing efforts and advertising budget and focus on proven return-on-investment (ROI)-centric effort. 4. Dont Advertise on Third-Party Intermediary Sites-Advertisements appearing on this Web site are delivered to users by Web advertising partners. Information about users visit to this site, such as number of times they have viewed an ad (but not user name, address, or other personal information), is used to serve advertisements to users on this site. BENEFITS: 1. Helps in finding new areas for pursuing cost savings-Apart from using product and marketing innovations strategies applied by firms to differentiate themselves, firms also need to look inwards towards existing cost centres and prune them or develop suitable alternatives to result in cost savings be. 2. Helps in lowering prices for end consumers-Due to commoditization sometimes the only resort left with the producers is to sacrifice their margins by lowering down their prices to an extent which bleeds the competition and leads to the emergence or survival of the fittest. 3. Helps in fueling innovation in the market place-Due to commoditization the companies need to innovate constantly to gain benefit over rivals and stay ahead of the curve. 4. Helps in differentiated products and service offering for consumer giving him enormous choice-To beat commoditization each firm tries to create a USP for the product within the more or less same price range and thus enables consumers taking benefit of enormous choice within marketplace in lieu of their buying power. CASE STUDY-IT SECTOR