Beating the curse of commoditization

An earlier post titled 'Brand Contradictions' had talked about the dilemma niche brands face in maintaining their premium appeal while being forced to discount, to up sales. The curse of discounting entraps brands when they reach a scenario of commoditization. This is very true for premium apparel brands in India that have failed to differentiate and occupy unique positioning spaces.

Prof. John Quelch on the HBR discussion forum proposes how to survive if brands find themselves in a commoditized industry characterized by me-too products, overcapacity and frequent price cuts and how they can make money. He advocates the following,

1. Decide which customers the brand does NOT want to serve, try renegotiating prices with them and, failing that, fire them. The brand will lose market share but improve profitability.

2. Compensate the salesforce on profit margin, not sales revenues. A volume-based salesforce will sign up any customer, regardless of profitability. That’s OK early in the product life cycle but not in maturity.

3. Trim costs and acquire competitors (with profitable customers) to extract maximum scale economies in procurement, manufacturing and distribution.

4. If the brand isn't the low cost producer, complicate pricing structures so customers can’t easily make side-by-side comparisons, and provide discounts as needed off of artificially inflated published prices.


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