For starters, Commoditization, a word coined recently, refers to a phenomenon where products and services that were distinguishable in terms of their characteristics end up becoming mere commodities to the market and end consumers.
Businesses across all industries are becoming more Digitized in an attempt to be increasingly efficient, relevant, reachable across a multitude of channels and realize instantaneous benefits. There are various factors influencing this business decision in becoming digital such as competitors’ progress, managing customers’ expectations, maintaining industry standards. As the rapid advancement towards digitization progresses, every business will encounter Digital Commoditization. Digital commoditization will refer to a bare minimum standard of satisfactory service and experience the end customer will expect from any business. Digital Commoditization will impact businesses irrespective of their decision whether to be a cost advantaged or differentiated service/product. In laymen terms for e.g. MS Word commoditized our memory of recollecting spellings, mobiles have commoditized phone books, maps have commoditized addresses.
Businesses in any form and genre thrive on three pillars of competitive intelligence viz. relevance of their products/services to the market, difficulty of imitation and the breadth of application. These pillars make businesses distinguishable from their competitors and often form their USP or core competency. These pillars of competitive intelligence help businesses develop the market intelligence practices which assess actions of competitors, look for long term prospects, gain information and develop proactive plans and reduce chances of unexpected news.
In essence every business identifies their USP through various tools/mechanisms in order to make a decision whether to stay competitive in the current industry or to migrate to a different industry. Bowman’s strategy clock is one such tool that identifies the competitive positioning of the business. Porter’s generic strategies/BCG matrix and many others serve a similar purpose. I want to focus this discussion to cost advantage vs differentiation advantage.
Businesses both large and small make calculated decisions in choosing whether to be in a cost advantage position or in a differentiated position. This is normally done based on the customers they are targeting. Customers are just one aspect in making this decision; generally all the entities of the value stream map right from operations to transportation affect the decision of being a cost advantaged or a differentiated business. The customers’ value perception also depends on various factors about the business and the product or service. Intent of buying decision emerges when the perceived value of the customer meets the competitive positioning of the business.
Businesses need to make informed decisions and generate quality leads for business. The value perception of the customer is a behavioural, interest based entity. Businesses should target their campaigns based on these aspects because if a customer is looking for a low priced product or service it is ineffective for the cater campaigns on differentiated service.
While there has been tremendous progress in sending meaningful campaigns to customers and gathering their attention, this has become a basic necessity. Campaigns in the current day emerge from an understanding of their legacy customers, geographies, interests, behavioral instincts of the target customers.
Businesses are increasingly moving closer to Digital enhancements. These enhancements support them to achieve better customer service, improve their market cap, and be available/reach to the customer through various channels. The Digital transformation in operational excellence/efficiency, process efficiency, customer satisfaction, marketing efficiency, customer management are changing every day. There are new developments and innovative ways of addressing these areas and make them more efficient than the traditional ways. For e.g. Customer service has been traditionally through contact centres. Businesses have often found cost effective ways of managing this piece of value stream. They moved to cost saving geographies while enabling the customers to achieve satisfactory customer service. Technology enabled this enhancement in the older days. With the emergence of digital channels, the traditional customer service has become obsolete. Businesses today are managing customer service through mobile apps, emails, IVRs, self-serve portals to meet customers’ expectations. These channels are becoming far more innovative. Businesses now understand customer queries through social channels. IVRs are more meaningful than a mere press ‘0’ for executive support. IVRs convert voice to text and robotics or workflow tools support the customers rather than human interaction. Businesses are able to bind customer queries from various channels including social along with system generated service alerts to provide proactive support to customers. Businesses are more available to customer today and are confident on resolving issues more efficiently. All this and so much more is happening just around customer service. There are similar developments happening across all areas of business value chain.
As these developments are progressing, some aspects have become industry standards. Social customer service is one good example. Although the service is naïve and improving, more and more customers are inclined to get service through a tweet or a message on Facebook page.
These Digital enhancements that businesses are digesting and are supportive of is making the industry move more towards Digital Commoditization. As we see a successful Digital transformation initiative in one business more and more businesses are accepting it making this an industry standard.
In the future, Digital Commoditization will become very obvious. This will mean a superior yet quicker customer service, offerings through various channels/reach, IOT, making customized service available to customer, relevant/meaningful conversations/campaigns, adaptable infrastructure (open sourced), depictive/predictive/definitive analytics, efficient processes for op ex/minimal human errors will be a dire basic need for any business.The traditional business strategy of being a cost advantaged/differentiated service has to accommodate the digital commodities as a prerequisite to stay competitive.
The faster businesses progress towards Digitization the sooner they encounter Digital Commoditization.
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