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Commoditization - The Enemy of Fast-Growth

by Doug Davidoff | Aug 26, 2005 9:34:03 AM

"A commodity is any good, service, or process that can be produced by any number of firms, and the only distinguishing feature between these firms is who can do it cheapest. Having your product or service turned into a commodity is no fun, because it means your profit margins will become razor thin, you will have dozens of competitors, and all you can do is every day make that product or service cheaper and sell more of it than the next guy, or die" -- Thomas L. Friedman, The Lexus and The Olive Tree


How easily can buyers quantify the differences between your offering and your competitors? How easily can your customers make those same distinctions? How can you continuously differentiate your company when market forces are constantly commoditizing you? Think about that question for a moment. It is the greatest challenge facing businesses of all sizes in the 21st century.

Commoditization is the evolutionary process that reduces all offerings to their lowest common denominator. Commoditization is the situation where businesses find themselves in when their focus is mainly on their offering instead of the quantifiable difference their offering delivers to their customers. I have asked over 2,000 businesses why people should buy from them. Virtually all of the answers fall into the category of "we are better," or "we give more value," and virtually all of those answers propel the business into commoditization.

"Value creation" is among the most common buzzwords used in business today. There is only one meaningful definition in business for the word value: something buyers would be willing to pay for. Your company can do great things, but if people aren't willing to pay more for it, your company is not creating value.

In my next postings, I will introduce a fundamental concept to avoiding or escaping commoditization. Please share your thoughts and comments with me. Just e-mail me at doug@ImagineLLC.com.