innovation and commoditization

It is a conventional notion that all markets are ruled by commoditization. In a mature product category, competitors steal one another’s advantages, price becomes the great discriminator, and “consumer goods” lose altitude until they are mere “commodities.”

Technological innovation is one way to fight commoditization. Trends are another. (Innovation from within versus innovation from without, you might say.)

In a perfect world, we do both. We innovate fiercely from within. P&G is a great example here. And we respond to shifts in consumer taste and preferences as these are variously driven by new, sometimes conflicting, cultural trends. Somebody ends up playing the commodity game. But it’s not us. We reap value by adding value through our creation or responsiveness to innovation.

There is a nifty little essay in today’s Wall Street Journal by Adam Hanft on the bankruptcy of Winn-Dixie, the 900 store supermarket chain.

…if you are in the supermarket business, one would think you’d be vigilant about trends, monitoring consumer behavior with [care].

That’s what makes the inability of Winn-Dixie—and in many ways, the entire super market industry—to track market changes and adapt to them such a stunning failure.

Hanft thinks Winn-Dixie’s problem is endemic.

This lack of marketing sophistication and a consumer-driven approach screams at us from the entire super marketing buying experience. (What other industry rewards those who spend less, which is what the 10 items or less Express Lane does?)

Supermarkets don’t manage the shopping experience well, that don’t build their own brands, and they don’t monitor trends.

In sum, Hanft is accusing the industry of consenting, of manufacturing, the commodity effect. It’s a radical argument. It says that commoditization doesn’t have to happen, that marketing sophistication can pull the centre of gravity upwards. Some players will always play the commodity game, but it doesn’t have to be the general approach.

Interesting, interesting, interesting. This is the new economics meets the new economics, I guess.


Hanft, Adam. How Super in Your Market. Wall Street Journal. March 1, 2005, p. B2.

5 thoughts on “innovation and commoditization

  1. gary

    In view of Publix’s success amid Winn-Dixie’s failure, it is churlish to tag all supermarkets as lacking in something or other.

    As for this—

    (What other industry rewards those who spend less, which is what the 10 items or less Express Lane does?)

    If not for the express lanes, the 10 items or less people would be shopping at convenience stores, so the supermarket is actually getting sales it would not otherwise have.

  2. AH

    Major contrast between shopping at local supermarkets (especially Randall’s/Safeway) and almost anywhere else. It’s the old paradigm of “we carry what it’s convenient for us to carry, the bosses tell us what kind of potatoes we will have, if you ask for another kind you’re harrassing us.”

    Not only does it drive me to specialty markets, it takes so much fun out of being an at-home foodie you just order pizza.

    We still have a cornucopia of wonderful food available in this country, but the experience of consumers having to handle the last leg of distribution could be much, much better.

  3. Sylvie

    How absolutely refreshing to look at commoditization as a fabrication, born of complacency most likely, or perhaps arrogance from players too self-involved to take the time to understand their consumer.
    I find this empowering, the answer is there for the taking.

  4. Richard Furash

    Traditional supermarkets, like Winn Dixie, are more concerned with extracting money from vendors than satisfying their customers. The zillions of bits of information they get from shopper cards go unanalyzed. Watch for a new wave of mergers. And a few more failures. Visit my blog:

    For more insight.

  5. Johnny

    Although I agree with Hanft, concerning the inability of Grocery stores to respond to consumers. It is odd however, that he uses that example, the 10 item (or 15 or 20) check out line is not a reward, but a market response to contain market share in concern for the consumer willing to spend more for the convinience of “running in and out” at the local southland (or whatever chain or small store).

    I was however recently talking to an Albertsons (Jewel subsidiary in this case) manager concerning her difficulty in getting the products her customers most want. They are gathering enormous amounts of info, but not yet using on demand programming. She was talking about being at the mercy of a very 1950ish kind of delivery to the store, a sort of, yea…if we feel like bringing it attitude. However, it is much better than the other chain that we have here in Chi-Dominicks-a Safeway co. They have thrown in the towel completely since they first tried to break the union and failed, then tried to sell the company, but the union strife, and overt employee hostility that the battle caused lowered the value. I suspect that they are just waiting long enough to close Dominicks till they can avoid any kind of RICO charge or FTC investigation.

    The funny thing is that they are profitable. However apparently profitable and strong union annoys Safeway more than profit pleases them. Very, Very early 1900 attitude.

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