Beating the Commodity Trap: How to Maximize Your Competitive Position and Increase Your Pricing Power
By Richard A. D’Aveni
Harvard Business Press, 2010, 208 pages
In Beating the Commodity Trap, Richard D’Aveni, professor of strategic management at Dartmouth’s Tuck School of Business, presents the results of research into how to escape from commodity traps, the undifferentiated doom toward which competition relentlessly sweeps all products and services. The author’s classification of the dynamics that lead to commodity traps is a novel and helpful way of looking at a perennial threat to the sustainability of all organizations.
D’Aveni’s chief tool for identifying commodity traps is the price/benefit trade-off graph, which he uses to map the competitive product offerings in specific markets. Typically, the resulting plot creates a line, on which products with low prices and minimal benefits are at the bottom left corner of the graph and those with higher prices and more benefits ascend toward the upper right corner. Over time, firms can reposition their products along this line, but actions of their competitors can change the slopes of the lines themselves, disrupting incumbents and tipping them into a commodity trap. When the line flattens (so that novel features no longer command premium prices), an organization on the right-hand side of the graph is in real trouble. Worse still, economic downturns can accelerate these changes and make the resulting traps much more difficult to escape.
Having charted 30 markets in this way, D’Aveni reports that he has identified three kinds of commodity traps, each with unique dynamics. Deterioration occurs when low-cost firms enter a market with low-benefit offerings — the cheap, fast fashion retailer Zara is an example. Proliferation occurs when competitors attack with new price/benefit combinations that trap an incumbent in the middle range, the way Harley-Davidson has been flanked by the Japanese motorcycle manufacturers and high-end makers like Victory and Big Dog. Finally, escalation occurs when one player begins offering more benefits for the same or lower price, squeezing everyone in the marketplace. Apple, with its range of iPod offerings, is a classic example of this ploy.
D’Aveni explains how to spot traps before they damage your business, identify the relevant commoditization pattern, and either escape the trap, destroy it, or use it to your advantage, with each stratagem illustrated by examples. As is the case in many academic analyses, the graphs look elegant and the post hoc logic behind the achievements of those who have successfully dealt with commoditization challenges is compelling. But it would be nice to have finer-grained, real-time accounts of exactly how managers and their organizations responded to the threats they encountered, rather than being shown their achievements as if they had used the rational, analytical model suggested by the author. (Richard Pascale’s famous twin Harvard Business School cases on Honda’s entry into the U.S. motorcycle market showed the value of contrasting a paradigmatic analysis of an event with its narrative counterpart.)
Nevertheless, D’Aveni’s conceptual frameworks are an elegant and useful way of understanding what happened in the past. Now a narrative companion volume is needed to help us appreciate exactly how it was done.
- David K. Hurst is a contributing editor of strategy+business. His writing has also appeared in the Harvard Business Review, the Financial Times, and other leading business publications. Hurst is the author of Crisis & Renewal: Meeting the Challenge of Organizational Change (Harvard Business School Press, 2002).