Tuesday, April 27, 2010

Is there still such a thing as a commoditised market?

I don’t believe there is such a thing as a commoditised market any more. There seem to be opportunities for innovation in every market.

We work with a lot of companies in what I used to think were commoditised markets. Fungible* goods like fruit juice used to be considered commodities before companies like innocent made them characterful, highly differentiated and, above all exciting for consumers. I’d love to work with innocent, by the way, if anyone there is listening, although I’d have to fight my colleague Rachel to get to the meeting first.

My background is in the hifi industry, a case in point. It’s a roller-coaster ride of an industry where LP, CD, DVD and Blu-ray have each in turn threatened to commoditise the market to the point where the lowest common denominator was so good that there was no pull from consumers to differentiate. But in every case a whole spectrum of distinct companies emerged who were successful with products from the astonishingly cheap to the outrageously expensive. Even MP3, feared as the death of hifi due to its inherent poor quality, has spawned everything from give-away products to luxury goods, and iPod, the industry benchmark, is hardly a low common denominator.

Beverages are another classic example, and not only fruit juice. I grew up thinking that instant Nescafe was the benchmark for coffee. Now I have a world of choice from excellent convenience coffee through to beans roasted to order. The humble tea bag, 102 years old, was a commodity for most of its years before Tetley showed that innovation could make you stand out from the crowd in even the most un-differentiated market. Their round tea bag was the radical innovation that not only helped them regain market leadership but also provoked their competitors into responding with distinctive products.

So are there any commoditised markets left, with truly no differentiation? Or am I right in thinking there are opportunities for innovation in every market?

I’ve posted a discussion on Linkedin for this topic, and on the Cambridge Consultants consumer products blog. Let me know your thoughts.

(*one of the “benefits” of doing an MBA is that you learn words like fungible which are very useful for dropping into meetings – thus marking you out clearly as a management consultant, or somebody who has done an MBA, or, frighteningly, both)

Duncan Smith is Commercial Director, Products & Systems Division at Cambridge Consultants

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