Commodification vs. Commoditization

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When I first encountered the word commoditization, I thought it was just an ugly synonym for commodification. I’ve discovered that–in American business parlance– commoditization is not at all synonymous with commodification.

The Oxford English Dictionary has separate entries for both nouns, but assigns commoditization the same definition as commodification:

the action of turning something into, or treating something as, a (mere) commodity; commercialization of an activity, etc., that is not by nature commercial.

American usage would agree with this as a definition of commodification, but commoditization receives a different definition in Merriam-Webster:

commoditization: to render (a good or service) widely available and interchangeable with one provided by another company.

In a business context, commoditization occurs when a manufacturer’s product or a provider’s service loses its initial uniqueness in the market. The Web abounds with articles about this phenomenon:

Avoiding the Black Hole of Commoditization

How Dow Corning Beat Commoditization By Embracing It

How to Avoid The Commoditization Trap

Software Commoditization vs. Customization

4 Ways Energy & Utilities Companies can Beat Commoditization

For the consumer, a commodity is merchandise, something to be purchased. For the businessman, a commodity is a product or service that a consumer feels is interchangeable with any other of the same type.

Bottom line: Commodification is putting a price on things that shouldn’t have a price, things like friendship, knowledge, and beautiful women. Commoditization is what happens when a name brand is perceived as being no more desirable than the store brand.

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