Page 145 - 100 Great Business Ideas: From Leading Companies Around the World (100 Great Ideas)

61 AVOIDING
COMMODITIZATION

When a product becomes easily interchangeable with other
products of the same type, it is said to become a “commodity.”
The process of a previously differentiated and specialized product
becoming interchangeable is known as commoditization. While
it is believed to increase overall economic efficiency, it can be
difficult for individual companies to handle. Economic value and
profits come from scarcity, whereas commoditization can curtail
the potential for profit.

The idea

A famous example of commoditization is the microchip industry.
While microchips started out as a specialized innovation that
commanded a high price, they gradually became mass produced
and interchangeable. This commoditization altered the nature of
the microchip industry, increasing competition and decreasing
profit margins.

Harrah’s Entertainment, a gaming corporation that operates hotels
and casinos in America, recognized that traditional attempts
made by casinos at avoiding commoditization—such as creating
increasingly garish and noticeable designs—were becoming stale
and ineffectual. It decided that the most effective way to avoid
becoming an interchangeable commodity would be to establish
an increased level of customer communication and gratification.
A loyalty program was introduced where valuable customers were
rewarded with significant gold-, platinum-, and diamond-level
privileges. Harrah’s CEO Gary Loveman commented, “When

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