Beware of the Commodity Trap amid the Holiday Cheer

As good cheer for one and all have emanated through the days of December, as countless parties abound from office to office, and we as consumers are ensconced in warm feeling of generosity, buying the best deals and spreading the good will – those that are behind the retail bonanza are wringing their hands in good fear. What will we do now that we have used all of our retail discounts, dropped our prices beyond reason, and have we none left for the good year? Yes, many of the retailers know the season’s greetings brings them that closer to the commodity trap where they are caught in endless combat with rivals to differentiate themselves from each other only to find themselves in one of three quagmires.
1. Deterioration – where prices and benefits are getting driven down by competitors that have lower operating and products costs like those of the Internet retailers, or like large box vendors that drive out initially mom and pops, then regional companies that cannot match the low prices and economies of scale that favor the larger competitor.
2. Proliferation – market fragmentation where niches are engaged by specialty competitors, such as those that only do oil changes, or retailers that sell mainly shoes, and for professional services, off-shore legal depositions to legal houses in Bangalore. In this scenario, prices and benefits fluctuate depending on the market segment, and for the conglomerate it is an attack on many fronts, often on a brand by brand basis.
3. Escalation – where the price goes down but benefits continue escalating. In the Chinese restaurant business, the super buffets have changed the business model for small mom and pop operations to the high end premium service operations. Today, for the price of one entrée, customers can enjoy over 250 selections. A hard proposition to beat.

In the book, “Beating the Commodity Trap” by Richard A. D’Aveni, outlined are solutions, strategies and pricing plans to foil the commodity quagmires through clever timing of tactics, knowing when one is actually in the trap or getting into one, and overall a good treatise on retailers like Sears, Forever 21, Gucci and other top retailers who over the last few years have had their business trapped by aggressive competitors. A good read on 21st century strategies in retail competition.