Surviving in a Commoditized Tech Market

A commoditized market is often perceived as an industry’s endpoint. A cycle of early innovation leads to the emergence of market victors, an influx of new competitors, and, finally, a standardized consensus regarding industry solutions, from pricing to value propositions to products themselves. Characterized by stagnant growth and decreasing corporate profit margins, commoditized markets frequently result in reduced long-term growth investment and a prevailing ‘play it safe’ mentality. This includes commoditized tech markets.

Of late, the intertwining of market globalization and technological innovation has accelerated the journey toward commoditization in most industries. A striking illustration of this trend is a recent Innosight analysis indicating that the average lifespan of an S&P 500 company has decreased by about ten years since the 1970s. Competitive disruption, the proliferation of marketplace platforms, and the ease of access to information have conspired to make enduring success an elusive goal. While these trends have manifested themselves across diverse industries and market types, the consumer technology sector is often susceptible (broadly referencing consumer-focused devices/wearables, software/video games, etc.).

The Acceleration of Commoditization in Today’s Markets

Let’s take flat-screen TVs, for instance. The price compression seen in this market over the last decade is indicative of the commoditization phenomenon. With Consumer Price Index data from the U.S. Bureau of Labor Statistics, you’ll find that the annual CPI-based price inflation for TVs since 1950 in which the average rate has been -6.5% per year, and much more over the last 2 decades (with a recent trend change/adjustment during COVID years).

As technology rapidly advanced (and standardized), the production costs decreased, and competitors flooded the market, the end result has been downward pressure on prices (a fantastic result for consumers!). The technical aspects of different models have become less obvious to most consumers, and price has become the primary differentiating factor.

4 Strategies for Consistent Growth in a Commoditized Tech Market

Fundamentally, the potential market opportunity with consumers drives rapid innovation and competition. Differentiating and standing out from the crowd requires a consistent focus beyond short-term results. Four broad strategies exist for consumer tech companies to consistently grow share and revenue, though only one (the final listed below) exists directly within the domain of commercial organizations.

1. Continue Product Innovation
   For most consumer tech markets, the competition increasingly comes from upstarts and from tangential categories. Product innovation is a must to ensure as certain markets become saturated, you are positioned to move into the next.
2. Build Stronger Integrations with Solution Network Effects
   Connectedness drives the need for products to exist within broader ecosystems (whether company-specific or broader). Finding positive externality flywheels within these ecosystems can help lower acquisition costs and differentiate from companies that neglect them.
3. Enhance Customer Experience
   Particularly for lower-priced consumer technology where switching or updating to the latest and greatest happens frequently, ensuring a post-purchase experience that is unrivaled in market can lead to successful revenue retention.
4. Focus on Branding and Upper Funnel Marketing
   With the ability to influence and differentiate at the point of demand capture or sale diminished, consumer tech companies can enhance how they engage before the purchase cycles begin to have a subconscious leg-up when decision time comes.

The Significance of Upper Funnel Marketing in D2C Sales

For consumer technology companies that have shifted or increased their focus on direct-to-consumer (D2C) sales, the fourth strategy is of particular relevance. Many of these organizations have over-rotated towards demand capture marketing strategies such as search engine optimization, pay-per-click advertising, and targeted social media campaigns. This over-rotation has largely occurred because of the direct attribution that predominates; if a sale happens after a paid social click, it gets attributed directly. While these tactics are critical for capturing in-market buyers, they typically fail to create meaningful differentiation or foster brand loyalty as they operate on more short-term, rational decision-making like pricing or discounts.

This brings us to the crux of the matter: the need to invest more in the upper funnel of marketing strategies. It’s about shifting some focus back to awareness and demand creation. In other words, before winning the consumer’s dollars, businesses must first put themselves in a differentiated position.

Establishing emotional connections with potential customers is crucial in this regard. Emotional branding transcends the mundane considerations of features and price points to tap into the consumers’ aspirations, needs, and lifestyles. When brands succeed in doing so, they increase the likelihood that consumers will gravitate towards their product when they’re in the market, even in a commoditized market.

Going Beyond Product Differentiation in a Commoditized Tech Market

Indeed, differentiation in a commoditized tech market is not just about standing out. It’s about resonating with the consumers on a level that goes beyond the product itself. As the consumer technology market continues to evolve and commoditize, it’s those brands that understand and implement this concept that will truly differentiate themselves from the rest.