I posted a comment on the Fast Company blog a few days ago, but thought it would be useful to repost it here -- and no, not because I'm too lazy to write a new post; this was buried in the archives and I think it's an interesting topic. It was in response to a post by John Moore (VP Mkting at Whole Foods) about the recent cover story on WalMart:
As director of national marketing for a grocer, I read with great interest the Fast Company December cover story - "The Wal-Mart You Don't Know." As you know, Wal-Mart is single-handedly responsible for the drive to commoditization that is happening in the retail business. I love what Seth Godin said in his book Purple Cow that a low price strategy is the last resort of a marketer that is out of great ideas. Commoditization is all about exploiting the low price strategy.
The impact commoditization is having on the game of business is tremendous and Wal-Mart seems to be killing nearly everyone with their quest to deliver the lowest price possible.
I have a bit different view of commoditization. A company or brand is in commodity status when it is not offering enough value for customers to pay the asking price. Commodity companies must continually decrease their prices in order to maintain a revenue stream... in other words, they're not 'exploiting the low cost strategy'; they're the self-made victims of lack of value. I have worked with several telecom providers who are trapped in price wars because customers don't perceive any value difference between the various providers.
Conversely, there are many non-commodity companies who are pursuing a low-price strategy, and it's not due to a lack of ideas. Take Dell, for example. They can charge a lower price than IBM because they've innovated their operations. Southwest Airlines and Trader Joe's are also great examples. The common denominator is not that they're less expensive, it's that they've innovated in a way that customers value. They 'could' actually charge more and people would pay it because they're providing a quality product or service; but it would run counter to their established brand.
So WalMart is commoditizing brands? I don't think so. They're simply determining who's willing to be a commodity brand and who isn't. Levi's is prostituting itself to WalMart because it had already lost its brand value. Leaders who know the value of their brands, who know they're delivering value and that their brand has a loyal following, will not succumb to the WalMart commodity-confirming machine.