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Is Commoditization A Threat
To Your Business?
C
ommododitzation can be a virulent and inevi-
table form of hyper-competition, disrupting
industries, damaging firms and destroying suc-
cessful products. It can also be a perceived phenomenon
and the danger is that customers and business leaders
buy into the commodity designation too readily so that
it becomes a self-fulfilling prophecy.
At its extreme, commoditization leaves business leaders
with a very simple and stark choice: to become com-
moditized and fight for survival or avoid it through some
form of strategic response. For some businesses the
former may seem the only option, but even fighting for
survival requires a strategy. For many it is a combina-
tion of both. As the zone of commoditization continues
to expand, it is increasingly seen as a critical factor by
industries around the world, and so organisations must
do everything they can to compete without destroying
the value they offer their customers.
So how should we respond to commoditization? What
can we learn from the responses made by other busi-
nesses and how does this relate to their existing and
future strategic intent?
Based on the review of academic thinking, management
theory and interviews with business leaders from some
of the largest, well known and influential high-tech busi-
nesses in the world including Cisco, Dell, HP, IBM, Micro-
soft, Verizon and Vodafone, a set of business principles
and recommendations follow which all business leaders
and companies facing the threat of commoditization
should consider.
All companies interviewed had adopted multiple
strategic responses to commoditization based on their
product and marketing strategy and overall business
strategy. Innovation was most commonly seen as the
antidote to commoditization, either through acquisition
or development of discontinuous technology having the
effect of resetting the market requirements. Value-add-
ed differentiation was a close second to innovation with
most companies building a broader value proposition
and a deeper relationship with the customer, bundling
commoditized products with value-added services and
innovative features.
FEATURE ARTICLE
With over 16 years’industry experience building high-performance teams and successful businesses around the
world, John Edmunds is passionate about enabling people and technology deliver superiorbusiness results. As Chief
Marketing Officer at FutureLogic, John was at the heart of FutureLogic’s digital transformationfrom hardwaresup-
plier to software solutions providerand subsequent acquisition by JCM Global. As an experienced thought-leader,
strategist and writer, John is a regular contributor to numerous gaming publications and has been guest speaker on
technologydiscussion panels and industry forumsin Buenos Aires, Las Vegas, London and Toronto.
Infinity Gaming Magazine is delighted to announce
industry veteran John Edmunds as our latest contrib-
uting writer and we all look forward to reading some
superb insights within the sector.
John Edmunds

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‘When experiencing Commoditiza-
tion companies should not restrict
their response to a single strategy,
rather pursue multiple response
strategies’.
The good news is that commod-
itization, by itself, does not mean
the end of innovation or the end of
business opportunities. In fact, it
can be the exact opposite. Com-
moditized products can be ‘inputs
into innovation’. The fact that
products get commoditized actually
means it’s easier and cheaper to use
them innovatively to gain a com-
petitive advantage. It’s about taking
advantage of the fact that they are
commoditized and realizing that
they are now a resource and part of
a much larger total solution and not
end products themselves.
‘Commoditization does not mean
the end of innovation or the end of
business opportunities rather com-
moditized products become new
platforms from which to move up
the value chain.’
Commoditization is also a process
rather than an event and companies
should know where they and their
competitors are in the commod-
itization cycle. Commoditization
therefore should never by a surprise
and can be managed proactively
with a clear understanding of the
future growth opportunities within
and outside the core market with
continued investment in both
continuous and discontinuous in-
novation. Understanding the key
capabilities within the company
and within the product portfolio
is central to building a technology
roadmap and future growth plat-
forms for sustainable profitability.
‘Commoditization is a process and
should be managed proactively
through the life of every product as
part of a technology roadmap.’
Through carefully managed stra-
tegic responses, it is possible to
compete in a commoditized market
where commoditization can be seen
as an opportunity for growth rather
than the threat of decline. Even in
industries with high commoditiza-
tion levels, firms can respond to
environmental challenges with
several strategy levers that can have
a positive affect on the company’s
performance. An assessment of
commoditization is a vital part of
a firm’s efforts to address evolv-
ing marketing competition and a
strategy that is balanced across
operational excellence, product
leadership, and customer intimacy
was shown to be critical to driving
performance. Where companies aim
to build a broader and deeper rela-
tionship with customers by moving
up the value chain replacing prod-
ucts and services with total client
solutions. As markets become more
commoditized however, a stronger
competitive focus on customer
intimacy seems to have the greatest
impact on performance.
“Commoditization: The process by which a product reaches a point in its development where one brand
has no features that differentiate it from other brands, and consumers buy on price alone.”

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In addition below are a set of practi-
cal recommendations which busi-
ness leaders can use to respond to
the threat of commoditization:
1. Monitor core markets for the fol-
lowing signs:
a. Prevalence of me-too products
and services
b. Lack of connecting unique value
to customer’s business drivers
c. A belief that all suppliers are
fundamentally the same
d. Decreasing customer desire to
review new options or features
e. Increasing customer preference
to select on price only
f. Increasing pressure on margins
g. Pressure on buyers to make
quality buying decisions
2. From the above signs identify
the actual or perceived type of
commoditization affecting the
company; it’s products, and market
segments:
a. Deterioration
b. Proliferation
c. Escalation
d. Evaporation
e. Quasi-Commoditization
f. Perceived Commoditization
3. Build a greater understanding
within the company of what cus-
tomers really want and what perfor-
mance metrics drive their business
over the short, medium and long
term. This should involve represen-
tatives from all departments.
4. Analyse the cost structure of
the business and decide how the
company can make money on the
individual commoditized products
now and in the future and how it
will compete with low cost alterna-
tive products and services. This may
involve outsourcing or offshoring
low value products and services to
third parties to reduce total cost of
sales.
5. Where the market allows, intro-
duce a low cost product or service
to compete in the commoditized
segment, creating degrees of sepa-
ration between low cost, mid range
and premium products.
6. Differentiate the value proposi-
tion from competitor offerings by
bundling or customizing the com-
moditized products with additional
value added products and services.
7. Move up the value chain by
addressing more customer value-
drivers and building broader and
deeper customer relationships.
Particularly in product orientated
markets this may involve adding
professional services to the product
offering.
8. Build the value of the brand in
specific market segments through
reputation, scale, credibility and
global relationships to differentiate
the brand from the competition and
build a unique proposition for the
customer.
9. Invest in continuous and dis-
continuous innovation strategies
focused on solving bigger and more
complex customer problems and
addressing more customer value-
drivers.
10. Leverage more of the customer’s
business concerns and increase per-
centage of customer’s total spend.