Sunday, September 09, 2007

Commodisation is a word I'm hearing a lot

It seems to be a business buzz word at the moment - something businesses should fear. So here is a definition.

A commodity is a product that is completely undifferentiated. If a product becomes less differentiated, so that buyers care less about who they buy from, this change is called commoditisation.
The key effect of commoditisation is that it reduces the pricing power of the producer: if products become more alike from a buyer's point of view they will tend to buy the cheapest.
Commoditisation is a key reason why many growth markets disappoint investors. Sales volumes grow as expected but, as the market matures, prices come under pressure and margins shrink. This is a key issue to consider when picking growth stocks.
In order to avoid commoditisation companies need to be able to differentiate their products with something unique, that is not easily copied by competitors, and which is valued by customers. This may take the form of a strong brand, a technology lead, good design, good retail locations, or anything else that will convince customers not buy the cheapest product. The alternative to avoiding commoditisation is, of course, to compete on price.

I'm not sure how that applies to the book trade.

My understanding of comoditization in the publishing context is the the quality of book stops mattering and the marketing, including the choice of author/subject/celebrity, becomes everything, and the success of the book is then thought to depend on the size of theadvance and the concomitant size of the marketing spend. It's what's happened to a good chunk of UK publishing. It appeals to publishers because it removes uncontrollable variables, like the quailty of the writing, from the equation.

The gorgeously sounding word "fungible" is an allied definition; A commodity is fungible if it is perfectly interchangeable with any other of the same type and class. So a fungible celebrity biography is one that is perfectly interchangeable with any other celebrity biography.

1 comment:

stickyfingers said...

The world has become a place where books are valued less than a large screen LCD TVs. Where the majority can entertain themselves by watching barely-literate young people seeking notoriety in toe curlingly banal competitions and humiliating reality shows.

To make money, it appears to be the case that publishers are looking to get a slice of this action by targeting the lowest common denominator. Marketing is one of the few effective ways of accessing this rich vein of disposable income.

I was at a Writers Festival where budding writers were told that they would stand a better chance if they were able to present a strong marketing plan with their manuscript. They also emphasised that the story must pay mind to what was marketable and for guidance future authors should look to books currently on the best selling lists.

It was also explained that although marketing was important, the resources of the publishing houses were tight and that not enough time was allocated to marketing strategy. Looking around me I factored that I was probably one of the few people in the audience who might be qualified to do as suggested.