Commoditization is the process by which goods with economic value and distinguishable attributes (uniqueness or brand) become simple, interchangeable, commodities in the eyes of the market or consumers. It is the movement of a market for that product from differentiated to undifferentiated price competition.
From the business directory (www.businessdictionary.com) comes this definition: “Almost total lack of meaningful differentiation in the manufactured goods. Commoditized products have thin margins and are sold on the basis of price rather than brand. They are characterized by standardized, ever cheaper and common technology that invites new suppliers into the market to lower the prices even further.”
Manufacturers or service providers that sell and market office printers and multifunctional devices are very sensitive about commoditization. Most in the industry think they provide a unique product and I support this view to a degree. However, before we go further it is important to clarify a few points.
First, parts of our industry—the office printing and document imaging industry—are certainly and clearly commoditized. Toner sales and the hardware-led transactional sales are particularly commoditized. Customers are inundated with sales companies and end up receiving six or seven proposals from different organizations trying to sell them a multifunctional device or printer.
Each quote includes a service price that is clearly at or below commercial floor. I call this “quote and hope.” I have seen this happen to businesses from two-person organisations up to large multinationals. How can the customer know who they should be dealing with when they have salespeople representing the brand directly, sales agents who represent a brand indirectly, resellers, IT integrators and others all are selling the same brand of device at different prices?
The highly competitive nature of the industry drives and accelerates pricing erosion. This looks great for the customer and not so good for an industry that resists the idea that it is a commodity business.
Customers will and do see this as a commodity product. When it is hardware-led, price becomes more important in the conversation, and that leads to a price war between brands and suppliers as they try to maintain or build market share. Market share, in turn, provides unit (device) numbers back to the manufacturer’s parent operation and feeds the economies of scale for manufacturing plants based in a number of geographic regions. As you can see, the industry is caught in a macro and micro-structural and cyclical process.
The difficulty with such a process is that it’s hard to break the cycle. Imagine swinging through the jungle, swinging from one branch or vine to another. It’s quite easy when you see the other branch and vine ahead, so letting go is not always the problem – you can see what is about to happen. Now imagine if you had to let go before you could see the next branch. Would you let go?
That comes with higher risks.
That’s what the majority of the office printing industry manufacturers are facing right now.
Some brands, in particular, are facing more rigid resistance than ever before. Their challenges are not temporary. We are seeing global structural and economic changes that are forcing many economies and industries around the world to rethink their operating models. With the increasingly rapid change in technology, old business practices are quickly evolving and this has a direct effect on industries like office printing and document imaging.
With this in mind the industry is attempting to evolve without killing off their existing business. It’s a delicate balance that they have to get right. If you’re too quick or too slow to change you may not be in the strongest position when a new market develops or when a stronger market leader can take the right advantage.
To manage this balancing act, office printing manufacturers across the globe are trying to protect their manufacturing volume while preparing for the new world. Transactional-led sales support the volume manufacturing model of the industry. The new services- led engagement supports their latest movement into MPS.
A true MPS offering should be less about device and brand, and more about providing a business outcome.
This means that device volume units will potentially decline and with the advent of print page volumes declining, this means that toner consumables (the very heart throb of the business) may start to decline.
