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What does Commoditization mean?

A market situation when there is no differentiation in the products. In commoditization, the products are similar and generally available off the self in abundance. The same product or services are offered by different suppliers offering minimal or no differentiation from others. This mostly happens over a period of time as the demand for such is abundant. In the beginning such product or services are charged at a premium but as the demand picks up it is offered by many producers and the product differentiation is reduced.

Futures Knowledge Explains Commoditization

Classic example of such products can be hardware or electronic products. The person or the company which invents it charges premium and once the same products are offered by different companies the prices come down. This process leads to margin compression as well as various options available with the buyers at the same time.

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