Book excerpt: How to Brand and Market A Commodity

Book excerpt- How to Brand and Market A Commodity

The increase in competition in just about every product category coupled with the ability for most consumers to quickly and easily seek out and compare all competing offerings via the Internet has put a great deal of pressure on brands to strengthen their positions and continually seek ways to deliver greater value to customers.

Here in the United States we have witnessed the proliferation of highly differentiated products with an ever increasing number of choices and alternatives. While branding has traditionally been rooted in the consumer packaged goods industry, branding principles have been adopted and adapted by other industries representing most other product categories, as well.

Companies on a global scale now realize that one of the most promising paths to long term longevity, a prosperous organization, and healthy profits is to create and manage strong brands for their products and services. We are seeing countries such as China, Korea, India, Finland and others put forth powerful brands with global impact. In the words of Scott Bedbury, author of the book by the same name, it is indeed "A new brand world".

For all of these reasons and more, the need for solid information and advice on how to brand and market commodities is currently stronger than ever. This need has prompted me to write this e-book in order to provide you with solid information on the topic in an easy-to-read, condensed format.

Why brand a commodity?

Branding is a way to escape the commodity trap of competing solely on price and volume. Branding also helps the branded product survive in an environment where not only is there constant downward pressure on price, but also a constant battle in which competitors savage and attempt to eliminate each other.

Branded products can increase market share, command price premiums, and deliver value to customers that exceeds what can be delivered by product features alone. Brands help create emotional and psychological ties with customers such that they become price inelastic. Brands can also make the purchasing decision easier, create trust in the buyer-seller relationship, and serve as a means to create an aura that surrounds the product offering that transcends tangible deliverables. These attributes benefit customers and producers alike.

Let's first define what commodity products are.

Definition of commodity

Commodity products are largely undifferentiated products that offer little or no perceived differences between competitive offerings. These are lowly differentiated products or services with high levels of substitutability and straight-forward price discovery. Commodity products are fungible as competitive offerings are easily interchangeable.

With little-to-no perceived difference, consumers shop for commodities primarily on a low price basis. Some examples of traditional commodity markets are: minerals, poultry, computer chips, bulk chemicals, coffee, tea, sugar, salt, flour, rice, spices, water, and oil.

Producers of commodities are driven to compete on low price and high volume. In general, the product life cycle is at the point where significant customer education and assistance is not required, customers have widely adopted the product, the market is mature enough to have attracted multiple competitors, and the market expands while prices decline as consumers demand price concessions.

Commoditization Warning Signs

Early warning signs of the beginning of commoditization are:

1 Increasing competition
2 Widespread availability of "me too" products
3 Customer resistance to pay for non-essential features and services
4 Pressure to reduce price
5 Lower margins

In such an environment it is usually only the producer with the lowest cost structure who can win and even then that producer must always seek ways to reduce costs while selling at lower and lower prices. This price-based competition can compromise product quality while decimating profits.

Excerpted from: How to Brand and Market A Commodity
Copyright 2005, Dave Dolak. All rights reserved.