There are many manifestations of commoditisation of a product or a service category. These include a shift in consumers’ minds from it being aspirational to becoming just another need, and loss of branding power resulting in reduced pricing power for the marketers of such products or services. At some point, the differentiation between competing brands becomes so indistinguishable that the product or service becomes generic, and at that time, consumers' buying behavior undergoes a fundamental change as they shift their aspirations to other product or service categories.
This commoditisation process first started to happen in early 1970s in the US and then select other developed markets when mass retailers first experimented with “brown-bagged” products (early precursor to what is now known as “private labels”) in categories such as sugar, wheat flour, breakfast cereal and several other FMCG products. Over the last 40 years, the share of these no-name generic products (or more correctly, private label products) has moved up to almost 40 per cent in the most intensely branded FMCG product categories, and in some markets, even more than 50 per cent. With that, while behemoths such as P&G, Unilever, Nestle and a few others have still managed to hold ground and even expand, countless other brands and producers have disappeared or have become terminally weakened.
Consumer durables and kitchen appliances were the next category to get commoditised, leading to the demise of some of the biggest US and European (especially many German brands) businesses and rapid consolidation of the survivors, to leave just about five major global players (which include LG and Samsung) still in the pink of health. Even there, categories such as washing machines, microwave ovens, stoves, and even refrigerators have seen rapid commoditisation at the mass end. Kitchen appliances such as mixer, grinders, electric irons, etc., have already been commoditised, as has the DVD player, with retailers like Wal-Mart selling millions of units per year, with just about no history as a brand in such categories. Music systems, with the extremely disruptive impact of digital music distributed through the newer mediums and stored in a plethora of devices including the computer and the cell phone, have seen rapid commoditisation of brands even as powerful as Sony in this category. The MP3 player category, including the ultra-successful iPod, have probably also reached their zenith and should see rapid commoditisation soon.
Which are the next in the list of endangered species (from the perspective of branding and pricing power)? The owners and marketers of these currently iconic brands will vehemently disagree but I believe that the categories which should see (at least in the Indian context) very disruptive changes in consumer behaviour include color TVs, digital cameras and mobile telephones. This is to add to the list that already includes most FMCG products, branded apparel, and health and wellness products.
As far as India is concerned, the phenomenon is somewhat easier to explain. It is on account of a combination of factors including demographic shifts that are leading to massive shifts in consumption aspirations; entry of over 300 million new consumers to the consuming class in the last 20 years and the expected entry of another 200 million in the next 10; commoditisation of technology and of manufacturing leading to open-source availability of product design, technical knowhow, and manufacturers; and changes in modern retail formats and increasing multiplicity of retail channels that not only include internet, direct door-to-door selling, catalogues, and even TV shopping channels.
Indian consumers’ incomes have indeed grown very rapidly in the last 20 years. However, their needs, desires, and wants have grown even faster. In this ever expanding basket of consumption categories, more and more consumption is happening in the “lifestyle” and “aspirational” categories such as leisure and entertainment, food services, communication (talk time), education and coaching / training (self and for children), health and well being, personal grooming, etc. To manage all of these new consumption categories, there is increasing pressure on traditional “merchandise” products and this pressure will only increase at the mass-consumer level. Unfortunately, there is not much that the owners of the current power brands can do to reverse this trend. At best, they can slow the process in order to give themselves more breathing time to give a completely fresh look at their current business and then to attempt spotting and making an entry into the next big growth opportunity area(s) for them.