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BRANDING OF COMMODITIES
By:
Sumit Gupta
MBA(IB)-2002-04
IIFT, New Delhi
ABSTRACT
INDUSTRIAL COMMODITIES:
As Exhibit 2 indicates, about one-fifth of its customer base cared most about
technical support and the ability to get hold of a sales representative quickly.
A third focused on the supplier's product range and product development
strengths. The remaining group—less than half—cared most about price and
on-time delivery. But because these complicated algorithms are not typically
used by business-to-business (B2B) suppliers, those companies divide their
world by weak identifiers such as size and geography.
In many B2B markets, 25, 15, or even just 10 customers account for 80
percent of sales. By taking them through a conjoint analysis and interviewing
their managers in person, B2B companies can gather most of the information
needed to determine exactly which customers really care only about price
and which features other customers would be willing to pay more to get.
In many B2B markets, 25, 15, or even just 10 customers account for 80
percent of sales. Therefore companies which serve different segments of
industrial buyers can maximize their sales by slotting prospective customers
into a needs-based segmentation scheme.
Carving up the market i.e. knowing who will pay for differentiation, how
much can be invested in the differentiation process and what benefits are of
value to their customers are building blocks for a brand. Successful
commodity marketers must start by recognizing that no market is truly
homogeneous. It is a deliberate process to find those customers who need,
appreciate and will pay for differentiation. In place of the traditional
psychographic or demographic approaches, the first step here is to conduct a
disciplined behavioral segmentation of the market by examining the actual
purchase patterns of the customers. According to a study by STRATEGY-
BUSINESS a consultancy arm of Booz, Allen and Hamilton there are three
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These are the customers whose concerns exceed a narrow fixation with rock-
bottom price. They will pay a premium for offerings that deliver true value in
terms of process enhancements, cost reduction or benefits to end-users. The
true Gold Standard commodity customers will consider long-term, strategic
partnerships with multiple levels of client interaction. They are usually a lot
more demanding than other market segments and they are also willing to
pay for their demands. For eg Australian Wheat Board scans the global
markets looking for buyers who are seeking high-quality wheat with very
specific characteristics. While most wheat buyers require wheat to meet only
two or three specifications, demanding buyers such as the Japanese may
have a list of 20 requirements. By seeking out the most demanding
customers and efficiently matching them with hard-to-find supplies that meet
their requirements, the Wheat Board is able to extract a significant premium
in a business where most competition is based solely on price.
B. Potentials
C. Incorrigibles
No matter what one does, customers are not going to love one. These are
not strategic thinkers. They are tightly focused on a single goal: making the
best possible deal on the transaction at hand. These are the pure price
buyers, who treat suppliers as the enemy and focus exclusively on current
delivered price. They will switch suppliers with lightning speed for even the
slightest price differential. Unfortunately, these incorrigibles constitute half
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2. Differentiate
3. Bundle
If the supplier can bundle multiple sources offering, the challenge facing
competitors becomes immense. Defining and delivering a differentiated
attribute that provides real value to the customer is essential, but not
necessarily sufficient. Often, a single attribute can be matched or at least
neutralized by agile competitors. Differentiation tied to a specific product is
the most tenuous basis for branding. Ideally, commodity branding is
associated with an offering (the basic product or service enhanced by various
forms of differentiation) rather than with a particular product. The goal is to
bundle multiple sources of differentiation and then to fight ferociously to
prevent competitors from unbundling them.
4. Deliver
Due to the lack of genuine differences in the commodities the brand strategy
for a commodity manufacturer should be based upon thus three factors i.e.
branding the product, service and company to create meaningful and
sustainable points of differences.
(SEE EXHIBIT 3)
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CONSUMER GOODS
Branding Strategies
In case of commodities, branding can take at two levels. First is the Category
level where the entire category is promoted by a consortium of producers to
jointly reap the benefits of branding. Such products are generally produced
by a vast number of producers and their product is jointly marketed by a
central processing authority (eg milk and eggs). The other level of branding
can be at the individual level where an individual aims to gain a critical size
by branding and differentiating factor (eg salt and atta). Normally such
categories don’t have a central processing structure.
CONCLUSION
The most successful brands will always be those that deliver not only the
tangible functional value but also the intangible value that is the implied
guarantee of a branded product. The promise of the brand will always be
seen as the most valuable benefit because when confronted with two choices
of apparently equal benefit, the consumer will always choose the one that
feels right. Trusted brands are not established overnight but are built up as a
result of long-term investment in delivering on the brand promise. If a
manufacturer can manage this, branding provides an escape from
commoditization as it moves the buying decision away from solely price
factors and therefore can generate a strong return on investment and long-
term sustainable advantage.
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APPENDIX
1.)
3.) Exibit 3
Brand Brand
Product: Company:
Differences Differences
in product in delivery
Brand
Service:
Difference
in service
BRAND AWARENESS
DEPTH BREADTH
REFRENCES:
• How to brand sand, Hill, Sam I., McGrath, Jack, and Dayal Sandeep,
www.strategy-business.com, Strategy-Management-Competition, Second
Quarter, 1998
• Segmenting Customers in Mature Industrial Markets: An Application, Rangan,
V. Kasturi, Harvard Business School, Case Study 9-594-089, 1994
• The Effect of Marketing Orientation on Business Profitability, Narver, John C.,
and Slater, Stanley F., Journal of Marketing, October 1990
• Branding electrons, Jaap B. kalkman and B. PetersThe McKinsey
Quarterly, 2002 Number 1
• Branding in B2B markets, John Frosyth, Alok Gupta, Suddep Haldar
and Michael Marn, The McKinsey Quarterly, 2000 Number 4
• ‘And man branded the sand’, www.etstrategicmarketing.com
• Case study: The California Milk processing board: Branding a commodity,
Case Book, International Brand Management, IIFT
• Case Study: Intel: Branding an ingredient, Case Book, International Brand
Management, IIFT
• “Can Anything be branded?”, Kevin Lane Keller, Strategic Brand management,
pg-13-15
• “Special Applications”, Kevin Lane Keller, Strategic Brand management, pg-
737-740
• Branding Industrial Products, Kevin Lane Keller and Frederick E. Webster Jr.
• www.intel.com
• www.blonet.com