Commoditization

Extracted Attributes

• Definition

  Process by which goods or services, initially distinguishable by attributes or brand, become perceived as generic commodities by the market or consumers.

• Key Effect

  Weakens the pricing power of manufacturers and brand owners, leading to price-based competition.

• Distinction

  Distinct from commodification, which is assigning exchange value to previously non-saleable items.

• Market Shift

  Movement from differentiated to undifferentiated price competition, and from monopolistic competition to perfect competition.

• Primary Driver

  Product substitutability, where consumers perceive competing offerings as practically indistinguishable.

• Consumer Impact

  Benefits consumers through lower prices.

• Producer Impact

  Harms branded producers by weakening brand value and ability to command price premiums, often leading to margin compression.

• Nature of Outcome

  Can be an intentional strategy or an unintentional consequence.

• Typical Occurrence

  Often occurs as part of a product's life cycle, as markets mature and technologies standardize.

• Contributing Factor

  Emergence of a standard design or technology in the marketplace.

Commoditization

In business literature, commoditization is defined as the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition and from monopolistic competition to perfect competition. Hence, the key effect of commoditization is that the pricing power of the manufacturer or brand owner is weakened: when products become more similar from a buyer's point of view, they will tend to buy the cheapest. This is not to be confused with commodification, which is the concept of objects or services being assigned an exchange value which they did not previously possess by their being produced and presented for sale, as opposed to personal use. One way to summarize the difference is that commoditization is about proprietary things becoming generic, whereas commodification is about nonsaleable things becoming saleable. In social sciences, particularly anthropology, the term is used interchangeably with commodification to describe the process of making commodities out of anything that was not available for trade previously. Commoditization can be the desired outcome of an entity in the market, or it can be an unintentional outcome that no party actively sought to achieve. (For example, see Xerox#Trademark.) According to Neo-classical economic theory, consumers can benefit from commoditization, since perfect competition usually leads to lower prices. Branded producers often suffer under commoditization, since the value of the brand (and ability to command price premiums) can be weakened. However, false commoditization can create substantial risk when premier products do have substantial value to offer, particularly in health, safety and security.

Web Search Results

• Commoditization - Wikipedia

  In business literature, commoditization is defined as the process by which goods "Good (economics)") that have economic value "Value (economics)") and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition and from monopolistic competition to perfect competition. Hence, the key effect of commoditization is that the pricing [...] Jump to content # Commoditization Deutsch Français Italiano 日本語 Edit links From Wikipedia, the free encyclopedia Process where unique economic goods become interchangeable in the eyes of consumers Not to be confused with commodification. | | [...] This is not to be confused with commodification, which is the concept of objects or services being assigned an exchange value which they did not previously possess by their being produced and presented for sale, as opposed to personal use. One way to summarize the difference is that commoditization is about proprietary things becoming generic, whereas commodification is about nonsaleable things becoming saleable. In social sciences, particularly anthropology, the term is used interchangeably

• Commoditization | Business Definition + Characteristics

  Commoditization is the process by which products or services that could be distinguished by their unique attributes (or brand) become commodities from the perspective of consumers in the market. Once a product becomes commoditized, the competing offerings are practically indistinguishable from each other, contributing toward price-oriented competition. [...] Commoditization is the occurrence wherein a product with economic value, formerly distinguished by its unique attributes or branding, is perceived by consumers as a mere commodity. Considered a material risk to most businesses, commoditization is an unfavorable development in the market that coincides with margin compression and a widespread reduction in pricing. ## How Does Commoditization Work? [...] ## Why Does Product Commoditization Occur? Simply put, commoditization occurs in a market when consumers perceive a product to be substitutable. In other words, opting to purchase a product from a particular company, rather than a competitor, has a marginal impact on the value retrieved (i.e. the quality of the products are practically indistinguishable). The concept of product substitutability is the prime determinant of commoditization of goods and services.

• What Is Commoditization? (With Effects and Examples) - Indeed

  Commoditization refers to the process by which goods or services become indistinguishable from each other, leading to increased competition based primarily on price. This often occurs when products or services are standardized, making brand differentiation less significant and pushing businesses to compete in a highly price-sensitive market.On the other hand, commodification is the transformation of goods, services, or even ideas that were not originally meant for commercial exchange into [...] Commoditization occurs when customers perceive similar products from different manufacturers as interchangeable, leading them to make purchase decisions primarily based on price. In a commoditized market, sellers often use price-related incentives, such as free shipping, discounts, or extended warranties, to attract customers.This process is typically part of a product's life cycle. A product may start with low competition due to its unique features, but as it remains in the market, competitors [...] Impact on customers: Commoditization simplifies the decision-making process for customers, as they tend to focus on price rather than features or brand. Customers may benefit from various incentives as companies compete, such as promotional sales, flexible payment options, holiday discounts, extended warranties, and free shipping. Example: When buying commoditized products like bananas, consumers may purchase from a cheaper fruit vendor rather than a supermarket.

• Commoditization: What it is, How it Works - Investopedia

  Commoditization is the process of converting products or services into standardized, marketable objects. This process tends to strip away unique or identifying qualities of the commodity in favor of identical, lower cost items that can be interchanged with one another. Financial products can also be commoditized, for instance through the securitization of mortgages or other individual loans into pooled investment products. ## Understanding Commoditization [...] Commoditization refers to the process of making something into a commodity. More broadly, commodification is taking something that previously was not available in the market and making it so, for instance the commoditization of the food chain has brought many more foods to the market, but has left small producers behind in favor large, low-cost producers. [...] A commodity is a fundamental good used in commerce that is interchangeable with other commodities of the same type. Commoditization is an action converts products, including financial products, into such an interchangeable and marketable item, such that it strips a good or service of differentiating characteristics. The good or service becomes indistinguishable from others in that same category.

• Escaping the Doghouse: Winning in Commoditized Markets

  Commoditization occurs when the market perceives products to be substitutable. Two common factors drive this substitutability. The first is the emergence of a standard design or technology in the marketplace. Initially, multiple technologies compete to become the market standard. As the market matures, companies converge on one standard, bringing greater parity across offerings. For example, when Gillette introduced its multiblade Mach3 system into the men’s shaving market, its offering was