Are Manufacturers Being Commoditized?

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There is often an overlooked byproduct of change, as markets shift and new technologies are developed - that which was once specialized is now commoditized. Take printing, for example.

CommodityTrap20 years ago, to have even marginally professional collateral or printed materials created required special skills and equipment, or the help of someone with them. And it was expensive.

Today, a laptop with a printer that costs < $100 and a ton of free graphics software and - voila! - you're capable of creating astonishingly complex brochures, signage and graphics cheaply and on-the-fly.

This same sort of commoditization is happening to you and many other small- and medium-sized manufacturers (SMMs) today, and you may not even realize it. That's because the common understanding of "commodities" generally relates to products, primarily in "open" consumer markets.

But a machine shop or discrete custom parts manufacturer like yours has always done business in and navigated markets to find work through more "closed" channels - so, you likely believe that you're immune to things like commoditization.

The fact is, you aren't. And the quicker you deal with it the better off your business will be.

A recently published book helps to contextualize commoditization, and give businesses the understanding and inspiration you will need to change (re: SURVIVE).

Beating the Commodity Trap: How to Maximize Your Competitive Position and Increase Your Pricing Power by Richard D'Aveni is a relatively short read (compared to the title): 200 pages and some change.

Its cornerstone is the premise that "Commoditization can happen to any firm. Any product, any time." The author uses a common graph to portray the competitive landscape in numerous markets to define where products are more commoditized and how to recognize "commodity traps."

Some interesting information points from the book include:

  • 3 types of commoditization: Deterioration, Proliferation & Escalation
  • You're not in complete control: your competitors' actions can be as disruptive as your ability to adjust is effective
  • Monitor your markets, competition and customers regularly to recognize commodity trends before they happen

If this book sounds an awful lot like Blue Ocean Strategy, it's because both books advocate the same principle - that companies that rely on pricing to differentiate themselves will find themselves in a "red ocean" where competition is fierce and differentiation is nearly impossible.

The availability of relatively cheap technology and expanding options for production have likely eroded your position of specialization to one of commoditization. Recognizing those shifts are critical to the survival of your business, and this book is an excellent guide to help you find ways to stay ahead of the threats that likely already are commoditizing you.

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