Commoditization is a major concern for my clients. The process that brings decision-makers to that point is a familiar one. As soon as a new product is introduced, competitors typically reverse engineer the product. Reputable companies will tweak the product so that they do not trigger intellectual property disputes but manufacturers in China do not even bother. Depending on the product, if it is successful, so many suppliers will introduce it that price alone becomes the main factor in purchasing.
You would be surprised that not all companies give up so easily. In the building product industry where a homeowner would not the difference between two types of siding or roofing, windows companies have done a remarkable job of turning their products into branded products. Think Andersen Windows, for example.
Like most products that go into a typical home, they are nearly identical and home-builders use them interchangeably based on price. The same is true for windows. However, companies like Andersen engaged in a comprehensive and sophisticated branding effort to make homeowners aware that not all windows are same. In addition, they offered customization of windows. By doing so, they were able to reduce the share of off-the-shelf windows to just about 20%. When nearly 80% of the windows are custom built for a homeowner, it enables manufacturers to realize higher prices and reinforce the brand.
So how can you turn a commoditized product into a branded product?
The figure below presents a simplified version of the process that we at Xinvest use with our clients.