How to respond to “commoditisation”
Experts tend to agree on the symptoms of the problem and the overall diagnosis, but they do not agree on the cure. All acknowledge that new technology, unlimited access to information and increasing global competition
are conspiring to “commoditise” entire industries and force prices into a
seemingly endless downward spiral. Their opinions diverge, however, when it
comes to the response they believe CEOs and companies should take to counter
those relentless market forces.
The value-added approach
Some experts recommend that businesses facing constant demands from
customers to lower prices should take a value-added approach. In essence, they
feel that companies can overcome commodity pressures and maintain high
margins by finding narrower market niches to compete in, and then focusing on
adding value to the customer in order to differentiate themselves from the
competition. When customers understand the difference you bring to the table,
they willingly pay a higher price.
The low-cost approach
Others believe that the value-added mindset is a relic of the old economy, and
that in the new economy the process of commoditisation is inevitable and
unstoppable. By fighting it, you only make matters worse by raising your costs,
which makes it impossible for you to lower your prices and still make money.
In a world where customers have many suppliers they consider to be equals,
the only way to make money is to continually lower your cost structure so that
you can compete on price. Companies that continue to employ a value-added
approach will soon cost themselves right out of business.
READ MORE (Strategy - Pricing Strategies) >>
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