Commoditization: How Can We Live With It? And What Are It’s draw backs?

By Andrew Paparozzi
In March 22, 2010

In our previous post, “Commoditization: What Is It? And What Can We Do About It?” we discussed the dangers of commoditization and what one can do to get out of being a commodities producer. However, often times, companies are unable to migrate along the Value Proposition Spectrum effectively or at all. In instances when companies are stuck in the left side of the spectrum, they will be forced into price competition with other similar producers, where often the name of the game is how low can you go.

So, how do you live with commoditization? The answer, as many in the industry would agree, is to be the lowest cost producer possible by focusing on all the areas that are shown on the left side of the Value Proposition Spectrum. Competition will be based on essentially speed, quality, and service at the cheapest price possible. However many in our industry are beginning to realize that being the lowest cost producer offers little if any guarantees of protection from the effects of structural change—a fact NAPL has been warning about for quite some time. Below are just some challenges that are being faced by the lowest cost producers in a commodities market:

1.    Constant Price Competition: Being the lowest cost producer will require a consistent effort to reduce prices, which means continually reducing cost no matter what. However, even than, lowest cost producers may still be challenged by prices of companies going below cost or a more efficient company from another market that can offer a better deal. Or as one NAPL State of the Industry participant put it, “It’s not that I want to give away my margins; it’s that I don’t want to lose a customer to somebody else that’s giving away his margins”. 

2.    Investment In New Technology: Being the lowest cost producer will also require constantly investing in the newest technology that can make your production faster, better and cheaper. A State of the Industry participant put it this way, “The thing is we rely on our equipment manufacturers for new equipment that allows us to offer better products—to be able to print better, image better, or insert better.” 

3.
Competition From Outside The Industries: Being the lowest cost producer may provide insulation from traditional competitors within a
market, but it may not provide the same protection from other industries that may have a completely different value proposition or cost structure. Or as another NAPL research participant put it, “I believe our customers are 100% delivery agnostic, they have no passion for print whatsoever, they just want to get their message out and sell. They are just passionate about online because that seems to be working for them. They will drop print at the drop of a dime, but they will drop online too, if they need to.”

Andrew Paparozzi

Epicomm's Andrew Paparozzi, Vice President/Chief Economist, is well-known for his accurate and thoughtful discussions on the economy and US commercial printing industry. A foremost author and speaker on economic business trends in the printing industry, Paparozzi heads Epicomm's Printing Economic Research Center.

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