Preface
The author mentions his previous book (Hypercompetition, 1994), which focused on the way in which technology and globalization were degrading competitive advantages. The situation he saw then has only become worse over time, and the area in which he has seen the greatest damage done in the area of brand identity.
It's convenient to blame the problem on external forces, such as the impact on the media on customer desires (making people want the same things) or the movement of labor overseas (such that the same factory in China provides a given part, or even a completely finished good, to multiple competing brands).
But ultimately, it is the decision made within a firm that causes such things to have an effect: to provide a commodity product to serve commodity needs or to differentiate yourself to a given customer segment, to accept an item a manufacturer wishes to furnish or demand that they manufacture goods to specifications you determine.
The problem is that leaders tend to focus on the short-term goals and seek the easiest and cheapest solution: they do not see commoditization coming, and have ignored the long-term trends, until they find themselves in the commodity trap.
He warns that this book will present uncomfortable ideas. There is a comfort and a sense of safety in being like everyone else, and to suggest doing things differently is dangerous. If you fail, but followed industry standards, your career is likely safe. If you fail because you deviated from standards, your career is likely over. It's a risk not many will take.
But the problem is that if every company in an industry is merely imitating everyone else, the industry itself becomes commoditized. And so long as executives look to minimize risk to themselves by shunning innovation, the commoditization will fester - it's like being in a hole and carry on digging.
(EN: There's a bit of waffling here that seems significant, but more fundamental. Very often, the blame attributed a faceless mass of people. "The investors" provide direction to the board, who direct executives, who direct employees; and "the customers" provide the revenue. So long as broad and ill-defined groups of people are to be revered, business becomes like religion, with people reading signs and omens to determine what these masses want.)
"In a nutshell," the point of the present book is to consider the problem of commoditization, to "provide a language" for firms to identify and discuss the problems and "a framework" to guide management.
Commoditization doesn't just happen. It happens when a firm fails to innovate out of fear of failure, and chooses (if by default) to fall in line with the industry standard.
The conventional approach to fighting commoditization is cost reduction: to continue to make the same thing as everyone else, but make it cheaper. But there is little evidence that this can be a sustainable practice for most firms: the largest firm, with the greatest economies of scale, will always underprice its competitors, and grow larger, eventually monopolizing an industry in which price is the only distinction among competing products.
The author asserts that "most managers do not know how to identify the root causes of commoditization so they are unable to avoid, eliminate, or in some cases, even use the causes to their advantage."
The author has developed a "framework" to help companies better understand the issues, to understand the commodity traps and to develop strategies that have been proven to work for companies that have been stuck in price and proliferation wars.
The first step is understanding the trap in which they are stuck. The next step is in escaping it, and staying out of it.
The author has considered more than thirty different industries that are commoditized or in jeapordy of becoming so, and identified three common commodity traps:
- Deterioration - One firm attracts the mass market with cheap goods, and other firms respond by price-cutting
- Proliferation - One firm attracts the mass market with a unique product, and other firms respond by imitating the product
- Escalation - All firms in a given competition choose to outdo one another in the same way (fastest computer processor, most fuel-efficient car) rather than distinguishing themselves in different ways.
Recognizing which of these three traps is the cause of commoditization is "a good starting point" and later chapters will provide tools for making this diagnosis, as well as ...
- How to assess which trap is the cause of commoditization
- How to recognize the trap before it damages a form
- How to escape, destroy, or exploit the trap
- How to choose which approach is right for a given situation.
The author asserts that his framework is not mere theory, but has bee developed and tested in the field. He also forewarns that his comments on companies are "frank and sometimes critical" but based on facts and hard data, rather than mere opinion and speculation.
He also notes that his preference is for a "longitudinal view" because commoditization is along-term problem. Most case studies focus on a very specific action for a short amount of time, and proclaim the success of a tactic that turned out to do far greater harm in the long run.
He also concedes the crush of current events: rising oil prices, the devastation of the financial industry, and the long and drawn out recession in which the US presently finds itself. These events likely influenced his perception, but they should not be written off as unusual circumstances.
Indeed, the history of the US economy is punctuated with periods of growth and upheaval. If anything, a financial crisis brings to light the problems that are often long-obscured by counterbalancing successes, and the lessons learned in times of hardship are more likely to carry over to times of prosperity than is the prodigality of prosperous times practicable in times of hardship.
An economic recession creates a "particularly pernicious" condition, which the author calls "evaporation." The revenue and financial resources of firms disappear, customers sacrifice quality for lower prices, and the commodity trap tightens as this becomes a vicious cycle.
Even so, this book is not intended as a survival guide for recession: recessions don't last forever, and commoditization was a problem even before the present recession began - it merely made matters worse. And the need to escape the commodity trap is even more poignant, but more difficult to effect.
Instead, think to the long term: the present situation cannot be ignored, but neither should it become a driving force in business strategy. It is a temporary problem that does not merit a permanent solution, and a strategy that plans a course for a decade or more must consider the economic environment to be one variable in the model.