Not long ago, I was asking a jewelry store owner about the changes reshaping his business: changing tastes, increasing preference for diamonds, young ladies turning away from yellow gold and so on. He told me something I was unaware of: that apart from greater competition, discounting was rampant, and that the most effective promotional offer was 'Making charges waived'.
I was aghast, and asked him whether this was not actually taking away the very element where a jewelry brand added value! Given the equal cost of gold across jewelers, without 'making charges' which represented craftsmanship, he was saying he was actually just a bullion trader. It was as if an Anita Dongre sold a dress for the price of the fabric and the buttons! The absence of any shocked realisation on his part, was a revelation; in his life, commoditisation of jewelry was an 'invisible truth.' Like nitrogen in the atmosphere.
And then my thoughts turned to other businesses, and I realised how widespread and entrenched the commoditisation virus has become.
Now, in some categories, it is true that the product being offered is a commodity, with an extremely low possibility of product differentiation. Sunflower oil is sunflower oil. And no matter whether the yummy dish shown is an aaloo sabzi in one ad, or a bhendi masala in another, the housewife is not taken in. The corporate brand provides quality assurance, and given pass marks on this among many brands, the housewife looks for the one on which the best promo is on offer on a given day. Commoditisation in a commodity business, so to say, is to be expected, but what of other businesses?
Take the driver of India's economic image in the new millennium: IT. As I talked to people in so-called 'technology' companies, I discovered that many of them were actually no more that cyber-coolie operations. With their proposals largely built around the number of people assigned to a project and the estimated duration of the work. In effect, the IT companies are competing on the arithmetic of 'man-day-dollars'. The differentiated players are few: a Cognizant that talks about the differential in terms of manpower quality or an iGATE that talks of fees based on outcomes. For the rest, the only way to improve their offer is to drop the man-days X dollars number.
And if IT services are the daily labour market of the 21st century, e-commerce offerings are the sunflower oil. Same thing, different name. Consider some clusters of brands in e-commerce.: myntra, jabbong, 99labels, fashionandyou, yebhi. Or a second cluster: flipkart, infibeam, timtara. Or yet another cluster: bindaasbargain, dealsandyou, snapdeal, naaptol, buytheprice
Undoubtedly there are specific differences between brands within a cluster. A particular book on a given day may be available in stock on flipkart and out of stock on another site. Or a certain dress in a specific colour may be available on one lifestyle site and not on another. But in the main, they are interchangeable. Will they manage to become truly differentiated in future? Sure they could. But when brands start using 'Discount' as part of their daily lexicon, you wonder. Price as the major basis of choice is almost the text-book definition of a commodity.
The problem extends to the advertising business too. In the days when they were in fact 'agencies' of media, every agency earned 15% of the media expenditure of the advertiser. Whether they did a better job than another agency did not change the picture. While one is happy to see a shift by wiser advertisers today, to a model including a performance-linked component, the arithmetic of quotations based on the 'input costs' of people continues to be common, with several agencies offering 'discounts' on these.
Years ago, a senior said to me: "A brand is what someone pays a price-premium for. The rest are commodities." I realised how far commoditisation has gone when I saw that books were being sold at Rs.100 per kg at a recent sale! This is the business model for the ultimate act of converting a treasure into a commodity: the 'raddi' business.