Comoditization October 6, 2011

Futures Rambling – Issue 63

By Laurie Aznavoorian – Geyer Workplace Sector Leader

Last month I made a sojourn to the United States. The purpose was primarily R&R sandwiched around business, the launch of a book I have been working on with a number of other authors around the world. The book’s topic is workplace strategy and there is no question that with a scintillating theme like that, it will be hitting the best seller list soon. You’ll find it in the sleep aid section.

Jokes aside, the book and the conference it was launched at were outstanding events, but the highlight of my trip and the part I want to share with you is about baseball.  As luck would have it, I was in the US during The World Series, the annual championship of Major League Baseball. Despite the misleading name, the competition has nothing to do with the world; as a matter of fact if Australia had a team they wouldn’t be allowed to play, primarily because to Americans, America is the world.

The most memorable game of the seven game series was the 6th, it went for a cliff- hanging eleven innings when typically a game only lasts nine. Game 3 wasn’t too shabby either, The St. Louis Cardinal’s Albert Pujols joined Reggie Jackson and Babe Ruth as the only players in the history of baseball to hit three home runs in a series game. No doubt it was the head trip, the bad ju ju created by homeruns that encouraged the team managers to make what fair weather fans like myself would consider questionable strategic decisions.

Those unfamiliar with baseball would not be aware of the high levels of strategy, statistics and science contributing to the game. I only became aware of this a few years ago when I read “Moneyball” by Michael Lewis about Billy Beane, the manager of the Oakland Athletics. Beane is credited for using a unique form of statistical analysis and strategy that re-evaluated what caused wins on the field. He turned what many considered to be a team of losers, misfits and utility players into champions. More impressive is the Athletics had approximately $41 million in salary, but were competing with teams like the New York Yankees who spent over $125 million in payroll.

Beane had what many thought was no talent and no money, he simply found players that were undervalued by the market and put them together in a new way. People like me go to baseball games to drink beer and eat hotdogs, there are true enthusiasts who actually watch the game, recording every play. It was this fan data, collected from baseball watching software engineers, physicists and derivatives traders, that Beane developed his approach.

Others have tried to copy Beane without success; the method was even featured in an episode of ‘The Simpsons’ when Lisa used mathematical analysis to improve Bart’s team. Being a traditionalist, Bart had no appreciation for what he felt took the fun out of the game.  “What happened to stealing bases, the suicide squeeze, throwing a little chin music. This isn’t the game I grew up with the game played in the misty ballparks of Enron field, or Pac Bell Park, then SBC and now AT&T Park”.

Bart concludes that from now on he is going to play the game his way, he was going to play “dummy ball”

Reading the book Moneyball, now a movie featuring Brad Pitt,  one has to admire Billy Beane’s guts and the wisdom he demonstrated in reinventing his team.  By realising that just because everyone does something one way, does not mean it is the right way; Beane was open to identifying attributes in players often overlooked by other coaches. He used and realigned those unique strengths and attributes to create a winning team.

This is not the first time bucking the trend has had paid off, in fact some of the world’s greatest innovations are the result of challenging the norm. For example, mathematician Frank Nelson Cole rocked up to a mathematics conference in 1903 and on a chalk board in front of a room of onlookers proceeded to multiply a nine digit number by a twelve digit number. The product was a 21 digit number equal to 2 67 _ 1. This was remarkable, in fact it was so exciting it warranted the first and only round of applause at a mathematics conference, because it was a Mersenne number. Named after a French monk, Marin Mersenne, a Mersenne number is better known as a Mersenne prime, or prime number.

Prime numbers are of course indivisable, it took Cole three years of Sundays, dividing 2 67 _ 1 by every possible number to discover that Mersenne’s 250 year old formula was wrong, that is 156 Sundays. This goes to show that bucking the trends often requires courage, persistence and patience.

Another revelation I came to from reading Moneyball was that despite the glamour, talent and money, professional ballplayers are commodities.  It’s not unusual for a player to be told to take off his uniform minutes before the start of the game because he has been traded to another team. Being swapped and shifted, sold like cattle with little concern for one’s personal life is a part of being a professional ballplayer.

Whether you’re playing baseball, or are a part of an organisation that has provided loyal service to a client for years; getting replaced with a cheaper, younger or faster model is no walk in the park. No one wants to be a commodity.

Commoditization, defined as a virulent form of hypercompetition, is believed by many to be inevitable in competitive markets regardless of what prohibitive measures a business takes, or how innovative they are. They maintain all goods and services will eventually become commodities. Others believe the best way to combat commoditization is through differentiation, but what becomes painfully apparent is the expense of creating and maintaining a unique point of difference.  It can also be a futile effort. In today’s fast paced connected world unique traits or ideas can be copied in a heartbeat.

In the book Beating the Commodity Trap author Richard D’Aveni  provides an appreciation of how companies become commodities. He maintains there are three traps, the first is Deterioration – the result of a low end firm entering a market with a low cost / low benefit offer, this is what companies like Geico and Zara have done. To combat Deterioration D’Aveni suggests adopting strategies to marginalise or contain the market power these low end entrants have.

Proliferation is the second type of commoditization and it occurs when companies develop combinations of price and unique benefits that attack an incumbent’s market. An example is the impact of Japanese motorcycles on Harley-Davidson’s market.  Finally, Escalation is when an organisation squeezes everyone’s margins by offering more, or the same benefits, at a lower price.

It doesn’t take a crystal ball to see all three of these types of commoditization happening in the design industry.  Product types, design look and feel and specific services that were unique or associated with a particular firm have been adopted by others. Looking at design firms today it is often difficult to distinguish one from another.  Unfortunately, it used to take a generation for a business to devolve from the top of the heap to a low – price commodity, but in this day and age it can happen in a year.

Economist believe every industry will eventually mature into a commodity environment.

Somehow I don’t see designers going down that easy, if for no other reason than to prove an economist wrong. We’re problem solvers and surely if we have the courage to resist status quo we have the opportunity to reinvent ourselves the same way Billy Bean reinvented the Oakland A’s in 1997.

To get the creative juices flowing here are 8 tips offered by strategist, author and innovation expert Kaihan Krippendorff, while most appear to be irrelevant on the surface, each is good food for thought. Perhaps if designers adopt one or two we can get ourselves back into the game of Moneyball and out of playing Dummy Ball.

1. Bring back the dead:  With clever marketing, what is old can become new.  Record companies are reissuing vinyl albums and even releasing new albums in the old format

2. Create new occasions:  What new uses can we create for our product/service?  One type of baking soda is indistinguishable from another, but Arm & Hammer pulled itself out of a low-price, commodity battle by creating new uses and occasions for its product.

3. Become the ingredient:  Borrow other people’s roads into your home. Today you find Arm & Hammer in toothpaste (whiter teeth!), detergent (cleaner clothes!), and deodorant (fresher smell…!). The beauty of becoming an ingredient is that customers become less price sensitive.

4. Move the action:  Aussie Post is not in the letter business, you go to the Post Office to send a letter and come home with a DVD and set of free weights .

5. Shift the basis of competition:  In commodity games everyone competes on the same basis, might we distinguish ourself by choosing a completely different dimension? Can we compete on something entirely different?

6. Attach a business:  Thomson Travel in the U.K. sells cheap airline tickets and tours. It can afford to because it does not depend on these sales for profits, but relies on funnelling customers into Thomson Travel Charter Airlines airplanes. What related high-margin business could we attach to our core?

7. Rapid-fire innovation:  Trying to run faster than our competition is not a strategy, only if we really are swifter can it work. If we identify the most important factors that drive our client’s decision making and then unleashed a stream of innovative strategies to address each we would be cooking with gas as my Mother used to say.

8. Change the basis of pricing: Fill in the blanks: “My competition charges $_____ per ______” Then replace the blanks with something different. :  Xerox grew to dominate the copying business not just by offering great technology, but because at a time when the competition was pricing per machine, Xerox was offering a service priced per copy.



Christensen, Clayton M, Raynor, Michael E.  How to Avoid Commoditization; The Harvard Business Press; September 2, 2003

D’Aveni, Richard A; Beating the Commodity Trap: How to Maximise your Competitive Position and Increase Your Pricing Power; Harvard Business Press Books; January 12, 2010

Lewis, Michael; Moneyball, W.W. Norton & Company Inc. Publication date: 2003

NPR Fresh Air; ‘Moneyball’: Tracking Down How Stats Win Games; September 23, 2011

NPR Talk of the Nation; College Sport;




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