Commoditization – Why You Need a New Business Model Strategy
In response to price pressures leaders have cut (and cut and cut) costs by outsourcing, off- shoring, consolidating, etc. Marketing departments have branded around compelling emotions expressed in powerful messaging. They’ve enhanced marketing communications to the point that potential listeners are tuning out and creating their own messages.
Companies have also invested fortunes in new product development. We have three times the number of brands in our grocery stores than we had twenty years ago — I know because I live in Norway part of every month and I miss rows and rows of choice. What conference agenda or its promotional material doesn’t contain the multiple mentions of “innovation”?
Our efforts aren’t working. Even before today’s daunting downturn, brand loyalty and premiums were dropping while bankruptcies and industry consolidations were on the rise.
Our traditional strategies to preserve price premiums and margins don’t work because they fail to address the underlying dynamics of market commoditization. Commoditization is the economy’s gravity whereby once unique benefits become standard features due to effortless copycat efforts, while costs are lowered through continuous improvements, disruptive innovation, and technology-enabled price shopping and easy market entry.
Economists love commoditization. You don’t unless you’re running the Walmart of your industry.
What’s your organization’s way out of this mess? What have you seen working?
For insight on business model innovation and the dangers of commoditization, read my recently released book, Beyond Price.