Part I – “From Concept to Commodity”

"What is the difference between equitable prices and commoditized prices?  Simple… the absence of innovation." -Nick Carter

If you are a manufacturer or a supplier, you have most likely experienced both the thrills of a new product introduction and the plague of petty, price-warring sales.  In the short time after a new concept is introduced (provided that it is viable) there is a period of rapid growth and high margins.  However, as the market matures and “early adoption” is long forgotten, commoditized prices ensue and you’re left wondering, “What next?”

In next week’s article, “Dare to be un-shopped,” I will address specific strategies for avoiding, or at least prolonging, this phenomenon.  However, the first step in addressing the problem of commoditization is to understand the business factors that cause it. 

When asked about their plight, suppliers in a commoditized market are quick to tell you it’s those nasty competitors they have, always dropping prices.  This may be a true observation from one perspective, but the reality is that competitors don’t drive markets, consumers do.  Where you see so-called “pant-dropping” prices, it is usually in response to shrinking market share that results from a flood of competition.  However, where you see this flood of competition, you’ll find it is in response to unmet consumer demand. 

According to capitalism, competition is good.  It keeps prices equitable and motivates innovation.  So what is the difference between equitable prices and commoditized prices?  Simple… the absence of innovation.  When the most innovative new concept that competition pushes us towards is to make our product less expensive, commoditization has begun. 

So, how can it be said that consumers, not competition, are the driving force of commoditization?  When consumers perceive that all products are the same, their only real factor for selecting one supplier over another becomes price.  The key for every business is to not become concerned with the competition because in the end, you cannot prevent competitors from entering your market.  Instead, businesses should focus on the consumer’s perspective.  If to the consumer you have no competition, then price is the last thing on their mind. 

Nick Carter is the president of Carter & Co., a marketing firm specializing in highly complex products and solutions in the computer, engineering, and manufacturing related industries. Read Nick’s blog: Marketing Avenue: 'Street Smarts' for marketing your technology.