INSTRUCTIONS: Please RESPOND to this answer from the Point of view as a student. Use credible sources and respond as if you are a manager of a marketing agency. Tell this student what your marketing agency would think of each of these answers from a Management perspective in about 4-5 paragraphs:
Firms can be greatly threatened by the process of commoditization. Sjoforos defines commoditization product as occurring, “…when your market views you as nothing special, and decides to buy from you primarily on your price. Feeling this pressure, you probably feel forced to cut prices and to add more and more value to what you offer” (2012, para. 4). For this reason, differentiation strategies are vulnerable to the pressures of commoditization (Carpenter & Sanders, 2008).
For this reason, Carpenter and Sanders have a number of suggestions for firms placed in this position. When commoditization is anticipated, firms can react to sustain differentiation or by pursuing a low cost approach. The first, the value-in-use approach, utilizes bundling to add value and keep prices level or raise them. It’s important to note that this strategy requires the added bundled items to be valuable to the customer. If preferring to respond through a low cost strategy, companies can utilize process innovation, typically by lowering operating or service costs. This lowers the cost position of a firm, so that it can further cut prices, and therefore, retain a competitive advantage (Carpenter & Sanders, 2008).
When commoditization is not anticipated, firms must react. Once again, firms can utilize a strategy based on differentiation or one based on low costs. The first, market focus, is engaged when a firm utilizes focused differentiation by maintaining or increasing service levels, reducing number of customers served, and increasing or retaining prices. This strategy will focus on profits, and will likely result in loss of sales growth and market share. “It permits the firm to target a small segment of the overall that’s willing to pay more for increased service” (Carpenter & Sanders, 2008, p. 178). The next option focuses on achieving a cost advantage through a strategy called service innovation. Here, a firm seeks price competitiveness by eliminating services it used to provide. This includes examples like paying for baggage and meals on planes, in addition to bank fees. This strategy is rarely successful and, therefore, quite risky (Carpenter & Sanders, 2008).
My current firm, as I have discussed previously, focuses on differentiation to compete. When reading these options to reply to commoditization, I considered my luxury hotel’s responses. If my firm found itself in that position, I can easily imagine it utilizing the value-in-use approach. This could include packages that provide all meals or activities, or additional costly amenities free, like spa treatments or golf. Furthermore, if commoditization was not anticipated, and Carmel Valley Ranch was put in a position to respond, I believe the best option would be to engage in market focus. In a way, market focus ties into the behaviors described in value-in-use approach. For instance, to increase services, the resort would like add amenities, like spa or golf, as described above for higher initial fees.
Carpenter, M. and Sanders, W (2008). Strategic Management: A Dynamic Perspective. Upper Saddle River, NJ: Prentice Hall.
Sjofors, P. (2012). 6 Tips to De-Commoditiozation. Peoria Magazine. Retrieved on November 23, 2016 fromhttp://www.peoriamagazines.com/ibi/2012/may/6-tips-de-commoditization.