Toward an understanding of industry commoditization: Its nature and role in evolving marketing competition
Introduction
A major theme in the study of evolving marketing competition has been the need to understand the causes of differing competitive environments and the implications of environmental changes for firms' strategic orientations (Heil & Montgomery, 2001, Weitz, 1985). Marketing scholars have increasingly emphasized one particular phenomenon as a critical factor in evolving markets: the commoditization of industries (e.g., Olson & Sharma, 2008, Sharma & Sheth, 2004, Ulaga & Chacour, 2001). Preliminarily, we consider commoditization as occurring when competitors in comparatively stable industries offer increasingly homogenous products to price-sensitive customers who incur relatively low costs in changing suppliers.
Previous research has indicated that commoditization is not limited to a single industry but rather constitutes a general trend pertaining to an increasing number of industries (Greenstein, 2004, Olson & Sharma, 2008, Sharma & Sheth, 2004). Thus, commoditization appears to be an important phenomenon in evolving marketing competition (Heil & Helsen, 2001, Unger, 1983). For example, many high-tech industries currently face the challenge of commoditization as a steadily greater number of offerings from their component suppliers are undifferentiated, including computer memory, television parts, and disk drives (Christensen & Raynor, 2003, Greenstein, 2004, Kohli & Thakor, 1997).
At least two developments are fundamental to this market evolution (Matthyssens & Vandenbempt, 2008, Shapiro, 2002): First, customers have become more informed. They can learn a great deal about a product and its use and will be able to find substitutes if necessary. Second, increasing transparency in competitive markets allows firms to imitate and improve on a competitor's product, providing sufficient alternatives to the customer, increasing the likelihood that he or she will switch to a different supplier.
In examining the consequences of commoditization, prior research has shown that commoditized industries are more likely to experience price wars (Davenport, 2005, Guiltinan & Gundlach, 1996, Heil & Helsen, 2001). In a similar vein, researchers have argued that increased commoditization will lead to lower profitability of firms (Matthyssens & Vandenbempt, 2008, Narver & Slater, 1990, Rangan & Bowman, 1992).
The increasing practical importance of understanding commoditization, coupled with recent academic interest in the topic, suggests two avenues for improving our comprehension of the phenomenon. One requirement is a commonly accepted conceptualization and operationalization of an industry's level of commoditization. While studies have mentioned a few key characteristics related to commoditization, such as homogenous products (Pelham, 1997) and industry stability (Hambrick, 1983b), the literature offers no comprehensive construct that captures multiple dimensions of commoditization. A second need is for clear guidance on how firms can effectively leverage different marketing strategies as markets trend toward commoditization. Specifically, marketing managers may need to rebalance their companies' strategic orientations. While some researchers assert that only operational excellence may count in commoditized markets (Pelham, 1997), others claim that product- and customer-centered strategies are key to performance in these environments (Robinson et al., 2002). Generalizable empirical evidence, however, is still lacking.
The primary purpose of the current article is to address these two neglected research issues. We first explore the nature and facets of commoditization, develop new scale items, adapt existing scales to capture an industry's level of commoditization. Then, we investigate the differential impact of various strategic orientations on firm performance, comparing high and low commodity markets. In doing so, we address three essential questions, which—in a more general form—have been raised as essential to marketing strategy research (Day & Montgomery, 1999): (1) How do commoditized and non-commoditized industries function?, (2) How do firms in these industries relate to their environment?, and (3) What are the contributions of different strategic orientations to firm performance in these industries?
In the following sections, we first discuss the in-depth field interviews that we initially conducted to identify the multiple dimensions of the commoditization phenomenon. Next, we review the literature on commoditization and derive hypotheses regarding differences between high and low commoditization markets in terms of the impact of different competitive foci on firm performance. Subsequently, we present a large-scale empirical study conducted among marketing executives, which applies a multidimensional measure to assess an industry's commoditization level and enables us to explore differences between high and low commoditization markets in terms of the impact of different strategy levers on firm performance. Finally, we discuss the theoretical and managerial implications of the article and offer directions for further research.
Section snippets
Field interviews
Much of the previous research only focused on a single dimension or a narrow view of commoditization. We conducted field interviews with six marketing executives to investigate the dimensions and potential existence of a multi-dimensional concept of commoditization. We adopted the following as a preliminary definition of industry commoditization: Industry commoditization describes an increase in similarity between the offerings of competitors in an industry, an increase in customers' price
Commoditization in evolving marketing competition
Although previous studies have stressed the importance of commoditization in marketing competition (Narver & Slater, 1990, Olson & Sharma, 2008, Rangan & Bowman, 1992, Sharma & Sheth, 2004), a commonly accepted, comprehensive conceptualization of this phenomenon is still missing. Drawing from our in-depth field interviews and a synthesis of prior research, we derive four distinctive aspects of commoditization (Fig. 1).
Survey study
To empirically investigate differences in the effectiveness of the three value disciplines between lower and higher commoditized markets and to test a newly constructed commoditization scale, we conducted a large-scale survey study.
Discussion and implications
While the commoditization of industries is receiving increased attention (Heil & Helsen, 2001, Narver & Slater, 1990, Olson & Sharma, 2008, Rangan & Bowman, 1992, Sharma & Sheth, 2004), this phenomenon has not been measured consistently in existing research. In the current study, we develop a multidimensional scale of commoditization level and empirically demonstrate commoditization as a multidimensional construct. Specifically, we show that product homogeneity, price sensitivity, switching
Limitations and future research
This study responds to the call by Heil and Montgomery (2001) for research examining the various aspects of changing competitive environments and their consequences for the marketing strategy of firms. Specifically, this study breaks new ground in the conceptualization, measurement, and empirical understanding of the commoditization phenomenon. We find that industries vary in terms of commoditization and that significant differences exist between high and low commodity markets in terms of the
Conclusions
Despite its limitations, the current research offers valuable insights to managers. Our findings suggest that even in industries with high commoditization levels, firms can respond to environmental challenges with several strategy levers that affect performance. This result implies that there are indeed ways to fight or cope with what has been labeled the “commodity status” (Greenstein, 2004) or “commodity trap” (Sanford & Taylor, 2005). Furthermore, we find that in lower commodity
Acknowledgments
The authors are thankful for the valuable comments from editors Oliver Heil, David B. Montgomery, and Stefan Stremersch, as well as the area editor and two anonymous reviewers. We also thank Bruce Clark, Margit Enke, Christian Homburg, Richard Köhler, and Chris White, the session participants at the Conference on Evolving Marketing Competition in the 21st Century, the American Marketing Association Winter Educator's Conference, and the Academy of Marketing Science Annual Conference for feedback
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