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.
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After breifly reviewing your blog,,,,So grey markets decrease product differention...........totally true? Not sure......Of course the experience of buying a product like RR is out of the picture, but can RR sell additional cars through Ebay????? Because as a consumer, if I want a particular good I will go to Ebay and look for that particular good regardless of price. Chances are price is lower. BUT, fact of matter, is before that product hit Ebay someone bought that product from the manufacture, retailer, wholesaler at price; therefore company wins with a purchased product and does have somewhat control over product distribution.
In addition, if I was a sales manager of a company with products I would be making contracts with Ebay to sell my good at a slight decrease in price becuase chances are volume would be large. But then we would need to get into calculus to determine profit maximization.........My brief analysis........
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