Business & Entrepreneurship · Thoughts

Which is more developed?

Businesses live in a cycle of commoditization and decommoditization. For the uninitiated (this is, of course, not meant for B-School students/graduates), in simple words, commodity is something where the consumers won’t differentiate between products from different producers. The products would essentially compete on price and may be some more or less objective measures of quality. When a product is decommoditized, differentiation is built upon on the basis of say packaging, brand etc. So, wheat flour was pretty much a commodity in India, untill brands like Annapurna, Ashirwaad etc. came in and decommoditized the market. Now, the way we associate the proliferation of brands and differentiated products with new age and development of markets, I have been wondering over exactly what will be called developed?

Consider financial markets. When they are developing, the information is becoming more and more transparent. And hence, the informed investors (customers for financial markets, in some sense) will make decisions based on price and (presumably) some objective measures of quality (of the stocks, say). That takes us more towards commoditization.

So, on the one hand, in the markets of goods we are witnessing the decommoditization of products, and on the other hand in financial markets, there is commoditization.

Which market is developing really? Interestingly, now even the goods market is being characterized by increasing information with the customers. So, is it that we will see a wave of commoditization there? Would that be the real development? And what we are seeing in terms of increasing decommoditization is actually just a bubble.

What development would have taken place then in this period between the early days of commoditization and the expected future with commoditization? May be this – that in the earlier commoditized world, things were commoditized out of lack of choice. In the new commoditized world, things will be commoditized because of excellent choice and sufficient amount of relevant information.

In that sense then, financial markets started late, but have gone ahead of the goods markets.

One thought on “Which is more developed?

  1. IMO, a market should be called more or less developed based only on the extent of choice and relevant information available to the consumer. Whether businesses are competing on price or following a differentiated strategy should not matter in the definition.

    And you have rightly said that commodification and differentiation come in cycles. This is for the simple reason that what is good for the consumers (commodification, so that consumers can extract maximum ‘consumer surplus’) is not good for the producers. To recapture the lost consumer surplus, then, firms (or new entrants) differentiate and earn better margins. Note that consumer choice is not necessarily curtailed by such differentiation. Choice of vendor, available in a commoditized world, is enhanced by choice in terms of product variety. And then the cycle repeats.

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