In the competitive environment of the market, products tend to become more alike as time goes by. This process is called commoditization, which occurs when customers perceive that a company’s products are similar to those of its competitors. As a result, the customers’ purchasing decision is based solely on the price of the product.
Companies are constantly seeking to differentiate themselves from their competitors, and innovation is a common process they apply to their products. However, the competitors soon imitate or surpass these products, as the cost of imitation is close to zero.
The competitive environment of the market has changed, especially due to advancements in technology that have increased access to information and reduced costs. This allows competitors to imitate, match, and improve products quickly.
Therefore, all products eventually become commodities, which are considered goods that have no differentiation in the market. The advantage that a company achieves through differentiation becomes a transient effect and cannot be maintained over time.
Commoditization and Competition
Commoditization is closely related to the process of competition, as the equalization of products in the market makes price the primary factor in the purchasing decision. As a market matures and more competitors emerge, companies begin to compete with lower prices, making consumers focus on price and ignore innovation and added value. In this competitive environment, a price war occurs and the process of commoditization takes place.
In the face of a price war, some companies end up cutting quality attributes and benefits, resulting in standardized products within a category. This makes the consumer lose loyalty to a brand and purchase based solely on price.
Factors Influencing Commoditization:
First and foremost, globalization is a major factor in the commoditization of products. On one hand, globalization has allowed many companies to offer their products in more countries, making it possible for multinational and transnational companies to reach a wider range of consumers.
On the other hand, the global level of consumption has increased, as companies can reach more consumers with high purchasing power to demand products. As a result, these consumers increasingly demand more added value and innovation in products, driving increased competition in the field.
- Advancements in Technology
Advancements in technology are another factor that influences the commoditization of products. With the growth of the Internet and the rise of e-commerce, customers now have access to a wider range of products and can compare prices easily. This has resulted in increased competition and price pressure in many industries.
- Maturing Markets
Finally, maturing markets also contribute to the commoditization of products. As markets mature, new competitors emerge and established companies must adapt to new realities, including increased price competition. In mature markets, companies often resort to cutting costs and standardizing products in order to remain competitive.
In conclusion, commoditization is a complex process that results from the equalization of products in the market and the pressure of competition. Companies must continuously innovate and differentiate their products to avoid becoming commodities, and consumers must consider the value and quality of products, not just the price.
