Strategy
Commoditization
When products become interchangeable and compete mainly on price.
Last reviewedWhat does Commoditization mean?
Commoditization happens when customers see competing products as basically the same, so price becomes the main reason to choose one. Margins usually fall. Companies respond by cutting cost, differentiating through service or brand, or moving to a less crowded segment.
Where does it come up in case interview prep?
- Value chains and profit poolsLesson in How industries work: the toolkit
- How payments work: cards, real-time payments, wallets, BNPL, and remittancesLesson in Payments and fintech
- How asset and wealth management worksLesson in Asset and wealth management
- How oil and gas works: from the well to the fuel pumpLesson in Oil and gas
- How mining and metals works: from rock to metalLesson in Mining and metals
- How the chemical industry works: commodity and specialtyLesson in Chemicals
- How agriculture and food production work: from seed to plateLesson in Agriculture and food production
Related terms
- Porter's generic strategiesCompete on lowest cost, on being different, or by focusing on a niche.
- Competitive advantageWhat lets a firm earn more than its rivals over time.
- Economies of scaleCost per unit falls as volume rises.
- Economies of scopeCost falls when related products share resources.
- Barriers to entryWhat makes it hard for new competitors to enter a market.
- Switching costsThe cost or effort for a customer to change supplier.
- Network effectsA product becomes more valuable as more people use it.
- Vertical integrationOwning more stages of your own supply chain.