Commoditization
Categories: Trading, Company Management, Regulations
Most companies do not want their products to be commoditized. That means there aren’t really any distinguishable features as compared to the competition, so the only thing left to compete with...is price. Perhaps they started out with a laptop computer with a long battery life, lots of storage, a light weight, and a touchscreen. Then, within six months to a year, everyone else offered these features as well, and the laptop became a commodity.
In finance, a mortgage loan or bond could start out being unique to the borrower or buyer, but turns into a commodity when an investor purchases it. With mortgages, government agencies such as Fannie Mae will buy “conforming” (i.e., commoditized) mortgage loans from banks, providing the bank with more cash to make additional loans.
For consumer products, commoditization might mean declining prices and lower profit margins, thanks to more competition. So the goal is to delay it as long as possible. This can be done by continuing to innovate and offer new features, as Apple does continually with their iPhone.
Consumers tend to come out the winners with commoditization, with lower prices and less effort required to compare distinguishing features—they can simply go with the lowest price. And as companies compete for their business, they start offering things like free shipping, longer warranties, and "buy one, get one free" promotions.
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Finance: What Are Commodities?74 Views
Finance allah shmoop What are commodities This is a comm
owed And this is my monnet ease And neither of
them have anything to do with commodities though if you
say them fast enough well you'll never mind A commodity
is something that is common like it's everywhere See the
com o there for the big hand Like gold is
a commodity it's everywhere oil is a commodity it's everywhere
seven hundred fourteen page paperback copy of moby dick is
a commodity and yes we can't resist clueless politicians are
a commodity as well Well a commodity is basically the
same thing no matter where and how you buy it
That copy of moby dick is the same copy whether
you get it at your local bookstore If a physical
book stores even exist anymore or on amazon the serial
killer of those aforementioned book stores So if something is
the same everywhere well what would be the opposite Well
how about a swim lesson from michael phelps You know
you can't buy that on amazon Not yet anyway Or
say you want to be the proud owner of a
three headed dog Well you might be able to find
one somewhere but it's going to cost you a whole
lot of kibble Or what if you were looking to
buy a blouse like one that was worn by j
edgar hoover Well those are pretty uncommon and or unique
commodities Well the basic idea is that most commodities can
be sold by lots of people so their profit margins
are generally low They may sell an extreme volume but
if you have thirty people competing to sell you that
same copy of moby dick don't don't you think the
last guy just desperate to get it off his shelves
will drop the price really low and you'll take it
Yeah unfortunately then you have to read that book That 00:01:41.357 --> [endTime] book really will be your way