Let me just say that I thoroughly enjoy reading your comments, Anonymous. Very well thought out and they always make great points. This is exactly the kind of discourse that I was hoping that this blog would start. I'd like to respond to your comment...
I believe in this day and age, more and more products are becoming commoditized. Technology is helping this conversion. Products that were never meant to be a commodity are becoming so, and I believe that grey markets contribute to this. Perhaps I should clarify a bit more... The rise in grey markets is changing the mindsets of consumers. The everyday consumer has easier access to grey markets like never before, and I think this plays a part in the commoditization of products. I'll go back to the playstation example... Some people joined the rush to Best Buy to get a playstation 3 for the kids. However, others wanted to purchase as many as possible, in order to resell them. There are in fact two different types of playstations. These people who wanted to get as many ps3's as possible didn't care which of the two models they got, they just wanted to get as many as possible. In this case, they were purchasing a commodity. The ps3 became a commodity because the buyer wanted to purchase as cheaply as possible and resell for as much as possible in a readily accessible grey marketplace (eBay).
I do agree with the fact that the original manufacturer makes a sale when their product is purchased. What happens to that product after the sale doesn't negate the profits made by the manufacturer. What I am saying is that, if you are a manufacturer, if you freely allow your products to be sold on a grey market, yes you do get the sale, but sometimes you cut off your nose despite your face. This is especially the case in a franchise business model. Allowing your products to be sold on a grey market hurts your franchisees because the eBay seller can sell the product cheaper than they can, for many reasons, one of which being the low overhead. If the franchisee is paying me a royalty or license fee, they are not going to be too happy if I condone this practice. However, if selling on eBay is part of your business model, then you are correct, selling on eBay would be a great way to raise sales.
Thursday, January 11, 2007
Wednesday, January 10, 2007
When is a product not a product...but a commodity??
I've been thinking a lot lately about what a commodity really is and what makes a commodity. Wikipedia defines a commodity (in a business usage) as "a commodity is an undifferentiated product, good or service that is traded based solely on its price, rather than quality and features." Last year I got a little taste of commodities and how they are bought and sold. Now, I can understand how corn is a commodity. One kernel of corn is exactly the same as another (theoretically, if you choose to ignore changes in quality). However, I'm wondering if technology coupled with other factors, such as grey markets, work together to commoditize most products on the market today. For instance, take the big rush on playstation 3's over the Christmas season. I mean some folks did stand in line to buy one for the kids, but others waited to get a ps3 just so they could put it on eBay and make a killing! These people didn't care about the features of the ps3, they were worried about getting as many a possible in order to put them all up for sale. Look at the other side of the coin... if I was in the market for a ps3 and I hopped on eBay to find one, I would see tons of different ps3's for sale. All of the video game consoles would be exactly the same, except for one major point. Yep, you guessed it, the only difference between the systems is PRICE. Sounds like a commodity to me... All of the ps3's on eBay are undifferentiated products, and as a consumer I would be drawn to the cheapest of the group. I'm now trading based solely on price.
This brings me to another interesting thought. In my marketing class last semester we had quite a lengthy conversation on grey markets (FYI, a grey market occurs when a new product is bought and sold in a market that is not authorized or controlled by the producer. The market is not legal or white, but not quite illegal or black, hence the grey market title. Selling new items on eBay is a perfect example of a grey market. Anyways, back to my point... We sat around discussing grey markets and eventually we started talking about how producers of products did not like grey markets because they could not control distribution of their products. Say you are a stereo company and you have been selling your stereos to a stereo shop for the last 20 years. If that stereo shop has to compete against the stereo being sold by John Doe on eBay, the owner of that stereo shop is going to be very angry because you can't control the distribution of your stereos. You're allowing more competition against him, and if he is paying you a franchise fee to sell your stereos, he is going to be twice as mad. Allowing your product to be traded on a grey market has adverse effects on your brand. A perfect example of this would be Rolls Royce. When you buy a Rolls Royce, it is all about the experience. You go in and they serve you champagne while you pick out all of the custom colors for your car. When you buy a car like a Rolls, you're in a very exclusive club. Now, say your neighbor just bought a Rolls Royce that he bought in an auction for $50,000 less than you paid. Suddenly, you're not feeling so exclusive anymore and the Rolls brand has just taken a hit because you're wondering "Where did this guy get a car like mine for less cost?" The point is, producers hate it when their product is traded on a grey market because it wrecks their brand. How does a brand get wrecked when your product is trading on a grey market, you ask?? I would say that when a product falls into a grey market, it is no longer a product, it is a ... COMMODITY!! Grey markets are all about the price. If the price of the Rolls on the grey market was the same as the price at the dealership, why not go there and enjoy the experience (who wouldn't like free champagne?). If your product becomes a commodity, then consumers aren't concerned about features and such, they just care about the price. Companies fight so hard to keep their products out of grey markets because once their product is a commodity, they can't differentiate their product from all the other products out there. All of the marketing efforts go right out the window when you're trying to sell a commodity. You just can't create buzz and grab market share for your product when it is a commodity.
This brings me to another interesting thought. In my marketing class last semester we had quite a lengthy conversation on grey markets (FYI, a grey market occurs when a new product is bought and sold in a market that is not authorized or controlled by the producer. The market is not legal or white, but not quite illegal or black, hence the grey market title. Selling new items on eBay is a perfect example of a grey market. Anyways, back to my point... We sat around discussing grey markets and eventually we started talking about how producers of products did not like grey markets because they could not control distribution of their products. Say you are a stereo company and you have been selling your stereos to a stereo shop for the last 20 years. If that stereo shop has to compete against the stereo being sold by John Doe on eBay, the owner of that stereo shop is going to be very angry because you can't control the distribution of your stereos. You're allowing more competition against him, and if he is paying you a franchise fee to sell your stereos, he is going to be twice as mad. Allowing your product to be traded on a grey market has adverse effects on your brand. A perfect example of this would be Rolls Royce. When you buy a Rolls Royce, it is all about the experience. You go in and they serve you champagne while you pick out all of the custom colors for your car. When you buy a car like a Rolls, you're in a very exclusive club. Now, say your neighbor just bought a Rolls Royce that he bought in an auction for $50,000 less than you paid. Suddenly, you're not feeling so exclusive anymore and the Rolls brand has just taken a hit because you're wondering "Where did this guy get a car like mine for less cost?" The point is, producers hate it when their product is traded on a grey market because it wrecks their brand. How does a brand get wrecked when your product is trading on a grey market, you ask?? I would say that when a product falls into a grey market, it is no longer a product, it is a ... COMMODITY!! Grey markets are all about the price. If the price of the Rolls on the grey market was the same as the price at the dealership, why not go there and enjoy the experience (who wouldn't like free champagne?). If your product becomes a commodity, then consumers aren't concerned about features and such, they just care about the price. Companies fight so hard to keep their products out of grey markets because once their product is a commodity, they can't differentiate their product from all the other products out there. All of the marketing efforts go right out the window when you're trying to sell a commodity. You just can't create buzz and grab market share for your product when it is a commodity.
Subscribe to:
Posts (Atom)