Friday, July 04, 2008

The commodity squeeze is a community process but Brand is an individual strategy

With oil prices where there are it is not unusual to see an article on the state of affairs in the news every single day and with oil comes OPEC the cartel of petroleum producing countries. There have been several different cartels that came and went over the years Sugar cartel, Rubber cartel, Steel cartel, Aluminum, Magnesium cartel, Explosive cartel, etc. None of which are in existence any longer?

The basic definition of a commodity is a product without any appreciable difference from supplier to supplier giving the consumer the flexibility of substituting one suppliers product with the other. The classic economics of supply and demand apply to the commodity world too and since supply is no longer controlled by one single producing/supplying party creates an opportunity for suppliers to collude on supply quantities and fix prices to take advantage of the market need. The only way to make more money is to constrict the supply collectively between the producers/suppliers. These collective agreements between the members and the need to forego revenues for members producing/supplying small quantities of product are the primary reason why cartels are not sustainable over long terms.

Brands on the other hand are a property of its owner. Only the owner can choose to restrict or release supply. The economics of supply and demand apply to brands too but the emotional connection creates a demand where a need may be satisfied through alternatives but a want/desire remains. This desire also enables the supplier to charge a price different from a competitive supplier. Each producer/supplier can develop a own strategy independent of the competitor based on the consumer segment and differentiated positioning for the brand. A clear and differentiated positioning that is relevant to the target consumer segment is the difference between independence as a brand and the dependence as a commodity.