Strategy
Commoditization
When products become interchangeable and compete mainly on price.
Facts checked against sources onWhat 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
- Brands, trust and pricing powerLesson in Why some businesses win: competitive advantage and the economics of strategy
- Cost leadership or differentiation: what must be trueLesson in Why some businesses win: competitive advantage and the economics of strategy
- Moats that erode: technology, rules and new rivalsLesson in Why some businesses win: competitive advantage and the economics of strategy
- 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
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.
Learn it in context
See Commoditization at work in a lesson from How industries work: the toolkit, with checks as you go.
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