Commoditization – the transformation of goods and services into a commodity – is a major problem when it threatens to rear it’s head. As technologies age, lose patent protection and become less expensive, there are often more competitors that will join the market. For many areas of the research products market, the eventual threat of commoditization is almost an inevitability. This is particularly true with reagents, chemicals, low-end equipment, plasticware, and glassware, but is also readily apparent in the market for kits and some kinds of proteins and antibodies. If these products lack a qualitative differentiator, they will all eventually become commodities. As such, customers will seek out only the lowest price goods and profit margins will take a huge hit. However, such is not always the case. In many of these markets there is still one factor that can make a huge difference. There is one way to add perceived value and differentiate your product from the commodities: branding.
When I use branding in this sense, I don’t simply mean some flashy marketing and design that contributes to brand or product recognition. Branding must mean the entire value that is behind the brand, including quality, customer service and support. Indeed, quality, customer service, and support are the things least likely to be replicated by competitors looking to sell low-price products. So then why are these things not the “one way to add perceived value”? Simple – all of these things get expressed through the brand.
Let’s take plasticware as an example. Eppendorf has an enormous share of the microtube market, and not for lack of competition. There are literally dozens of manufacturers of microcentrifuge tubes, and most microtubes are far cheaper than Eppendorf’s. So then why does Eppendorf maintain such a huge share of what should, at a glance, be a commodity? Entrenchment and longstanding brand recognition aside, they have an extremely high quality product (and I would know – I’ve put all sorts of microtubes through the gauntlet in my day), and that quality is consistent. This is then captured through the brand. People see the Eppendorf branding on a product and presume, usually rightfully, that they can trust it’s quality. Many other manufacturers who are trying to undercut Eppendorf are not able to replicate their quality at such a low price, so Eppendorf maintains the advantage of pricing its product higher due to the differentiation created by the higher quality product and expressed through the brand.
Another great example shines out in the Life Technologies 2010 Q2 earnings conference call question & answer session. Jonathan Groberg of Macquarie Research asked about Life Technologies’ PCR portfolio and commoditization in the PCR market. Gregory Lucier, Life Technologies’ CEO and Chairman, responded by saying:
…the relationship between price and volume is not a direct connection. And that’s due to a lot of the friction of publications, previous experiments. There’s just inertia to switching. And when you have market leadership like we certainly do in the PCR business, people are inclined to stay with their products, and so we benefited from that.
Again, this is a non-tangible perceived value addition. Life Technologies is attributing the continued success of its PCR line in part of the value that the brand conveys – in this case a “tried and tested” product. Scientists know that everyone uses Life Technologies PCR products, and they therefore trust them to be reliable.
If you’re on the outside of a bioscience market where commoditization is either already present or a serious risk and you’re trying to get in, or if you have a small market share and a brand with little recognition, these examples admittedly may not seem too helpful to you. While market entry is a topic large enough for a lengthy book, I will offer a few tips as they pertain to a partially or wholly commoditized market. 1) Look at your entrenched competition and use them as a baseline. What are they doing that allows them to avoid commoditization where everyone else fails? Can you position yourself to have an advantage other than price? Evaluate the hurdles that need to be overcome to do so. You can generally assume that your price point will need to be lower than the products of any well-known, entrenched marketplace behemoths (if they are present), but can be higher than the commoditized products. 2) Commoditized markets are most often very large (there’s an economic reason for this that I won’t get into) and trying to gain market entry across the entire market can often be too big of a task that dilutes marketing efforts and decreases marketing ROI. Find a particular sub-segment of the market that can be easily identified and marketed to and tackle that segment first. This strategy is almost always much more effective and gives you a foothold to expand your market share from.
Aging markets almost always lead to increased competition, but with a good marketing and business strategy, commoditization can be avoided.