Commodities and Commoditization

com·mod·i·ty

[kuh-mod-i-tee]

noun, plural -ties.

1. an article of trade or commerce, especially a product as distinguished from a service.

2. something of use, advantage, or value.

3. Stock Exchange . any unprocessed or partially processed good, as grain, fruits, and vegetables, or precious metals.

4. Obsolete . a quantity of goods.

5. A product whose only differentiation to others in the same category is price.

There was a time not so long ago that everything was organic and everything was Artisan. Bread from the neighbourhood baker, horseshoes from the blacksmith, or dresses from the dressmaker, it was all hand made by the artists hand.

A commodity was a mass product, the source was from someone growing large quantities of it. Coffee, Wheat, Rice were all commodities. However, with the rise of the industrial revolution, mass production became the norm. Nowadays, with China becoming the “Factory of the world” and we see capitalism at work. Diminishing returns applies and we get the commoditization of produced goods.

Through this process, We get the Rules of Commoditization.

1. Anything that has demand and can be produced for a profit, will be produced.

2. Anything that can be produced for a profit will be mass produced.

3. Anything that can be mass produced for a profit will inspire other companies to follow suit and to also mass produce.

4. Anything that is mass produced, as production increases, diminishing returns will set in until the profit becomes close to zero.

These rules happen in order and of course are gross generalizations with caveats at each step. But with time, the only differentiation becomes price and the product itself becomes essentially homogenous.

In the absence of real differentiation, a product is only defined by virtue of its specifications. Specifications can be copied and priced accordingly.

Any product therefore, that can be imitated like that and mass produced, becomes a commodity.

On the flip side, as we saw in Longchamp And The Art Of Making Nylon Sexy, the product in question is essentially a nylon bag with leather trimming. However, the product is riding on the brand and pushed through the marketing process of a high end European consumer fashion entity.

There are numerous imitators from China but Longchamp understands that they are purveyors of Aspirations. Even though the product in itself is simple, it stands for something that is larger than itself and that is what the consumer buys in to.