Vous êtes sur la page 1sur 4

What is the difference between a product and a commodity?

Bennett E. McClellan, Ph.D.


While reading certain material related to topic we are covering in
Strategy module, I came across multiple sentences which implied
'commodity' being different from 'product' (mostly implying as if
commodity is of less value than product). However I am not able to
imagine what is the difference between two and how a product is more
valuable than a commodity.
Please throw some light on this.
There are a number of differences between commodities and
products but the differences are not always evident. As a practical
exercise, let me deal with three kinds of differences, and then give you
some examples to illustrate. The categories Ill discuss are fungibility,
form & function, and perception.
Fungibility
Something that is fungible can be interchangeable with similar things.
The American Heritage Dictionary gives two definitions of fungible:
1, Returnable or negotiable in kind or by substitution, as a
quantity of grain for an equal amount of the same kind of grain.
2. Interchangeable.
n.
Something that is exchangeable or substitutable. Often used in
the plural.
Commodities we deal with every day are currency, bulk foods, gold
bouillon and water. These are all interchangeable kinds of
commodities. A 10-rupee note can be exchanged for any other 10rupee note. A scoop of rice is a scoop of rice, whether you buy it at Big
Bazaar, Easy Day or from a street vendor. Water quinces your thirst
whether you get it out of the bottle, out of a cooler, from a rain barrel,
or other sources. A drink of water is a drink of water. Unless
At the heart of distinguishing a commodity from a product is the
concept of differentiation. There has to be some way the buyer can
tell one offer from another. What factors distinguish one commodity
from another?
Unless you do something to that commodity to differentiate it from all
similar commodities it remains fungible. Doing something to a
commodity to distinguish that commodity from similar goods is called
adding value. So one way to move a commodity toward being a
product is to somehow add value to that commodity.
1

Think about the various value chains weve created in this course. You
can add value beginning at the source. For example, with coffee you
can differentiate your coffee from other coffee by making it organically
grown. While there still may be tons of organically grown coffee, the
designation organically grown moves away from coffee as coffee to
Premium priced coffee. Why? Because it starts to look like a product.
You can further differentiate organically grown bulk coffee by making
it fair trade or cruelty free or...etc.
Lets think about packaging as creating products. A package unitizes a
bulk commodity. It takes something that is messy to handle and gives
it handle-ability, shelf dimensions, carton-ability, and cleanness. You
can price it in a way that takes away the buyers ability to determine a
price per kilo paid. Think of the difference between tea leaves in bulk
and those that come in a nice box, with pre-measured portions,
packetized in a pouch with a little string and paper handle. Its the
same tea inside the pouch as you get in bulk. But Tata or Tetleys are
able to charge a whole lot more per kilo of tea sold in packets than a
bulk tea seller gets because they have taken a commodity (loose tea)
and made it into a product (packetized tea).
Form
Think about the value chains we drew for the laptop computer. The
commodities involved were aluminum, plastics, copper, rubber, silicon,
and a bunch of other stuff in small quantities. If you think about all
these commodities in small piles, you will realize they do not add up to
much in terms of either utility or value. None of us are likely to want to
carry around a half-pound of the bulk commodities that comprise the
iPad. And yet we all want an iPad.
Why is that?
Much of the answer is in what Im going to call form. Its a bit beyond
packaging as form creates relationships among elements in ways
that make those elements more useful or more functional than they
were as stand-alone commodities. You can see how this discussion
can get complex quickly. There are a lot of levels of form. But lets just
take one: microprocessors.
Intel makes microprocessors. Structurally, these are layered crystals of
silicon and traces of impurities with patterns of lines etched into them.
These chips are packaged with protective wrappers and connectors
that can hook into other components. So is a microprocessor a
commodity or a product?

You certainly dont find microprocessors in nature. DeBeers mines


diamonds, but nobody has yet found the microprocessor mine.
Someone has to make those things. And they make them by
aggregating commodities, with a lot of knowledge, to make something
that has unique form and function.
The function part is critical here. You could make a microchip that
looked exactly like an Intel chip, but it would not work exactly like an
Intel chip. There has to be an associated functionality to the form or
its basically either a model or a counterfeit. So an Intel microprocessor
is a product to the extent that its distinguished from all other such
goods. And yet its a commodity in that one microprocessor is the
same as all other microprocessors of its class.
Still, I would argue that the latest generation of Intel chips is always a
product. Whatever it offers, its unique at the time its introduced.
Others may eventually backward engineer the chip and come out with
an imitation. But even the imitation will always be seen as somehow
different or somehow lesser. Thats why there is the Intel Inside label
on your PC.
This brings us to the third category that differentiates commodities
from products: perception.
Perception
Branding is based on the idea that you can convert a commodity into a
product by stating that your version of the commodity is somehow
different from other versions. Intel Inside is a brand claim: Our
chips are better.
The simplest illustration of this principle is bottled water. Does bottled
water do your body any more good than water you get from a rain
barrel? The simple answer is No (assuming neither source of water
has been contaminated). For your body, a drink of water is a drink of
water. But how much do you pay for a drink of rainwater vs. a bottle of
water vs. Evian water vs. a Perrier? Come on folks, - it s the same
frigging chemical composition! We know why it makes sense to pay
more for bottled water than for water from a barrel (see discussion of
tea above). But why are you paying four times the amount for the
brand water than for plain bottled water? This makes NO sense.
Unless you believe there are differences.
The answer is that you somehow perceive that the branded water is
better in some way that makes you willing to pay a premium for that
sense of difference. It comes back to differentiation. You believe or

you perceive the branded water as different even thought you KNOW it
is not. There is a lovely illogic in branding.
Lets think about cars. Most cars are the same in terms of getting you
around in a predictable manner. But some cars cost a lot more than
other cars. There are, of course, differences in design and functionality
(form and function) but there is very little difference in the commodity
content of the vehicles. Iron, glass, steel, rubber, plastics, etc. Some
use more, some use less. And really, there are only small differences
in form and functionality. Yes, a BMW is a better drive than a Nano. A
bit better. But does that difference explain the huge price difference
between the two cars?
Not really. That huge price difference is based on perceptions, not
commodity content, form or function. Its about fun, prestige, feelings.
In short, these are differences created by perceptions, not facts.
Designer jeans provide a great example of this phenomenon. There
was a study (maybe several) done (I dont recall the specifics) that
showed an inverse relationship between cost of designer jeans and
quality of materials and workmanship. In other words, the more
expensive the jeans the less wear you could actually get from them.
Does that make any sense?
Why would anybody want to pay more for a commodity (pants) than
they needed to? Simple: WE want to be different. There are nearly 7
billion people in the world. Half are female, half are male. There is a
normal distribution of age, intelligence, body type, and so on. The
basic human is, in some senses, a commodity. And yet we all want to
be individuals.
How does on human distinguish himself or herself from all others?
Ill let you ponder that question. And leave you with this thought: we
are more than the sum of elements that make up our bodies. Much of
the difference between the raw materials that make us and the
persons we are today can be attributed to what Im calling packaging,
form, function and branding.
Its pretty clear that there is a huge difference in terms of value
between commodities and the expressions they take as products.

Vous aimerez peut-être aussi