Toasted on both sides

But if one looks at the history of this impressive innovation, one sees that the opposite is true: the toaster industry has been driven by differentiation, segmentation and ongoing technical innovation for more than a century.

In 1919, for instance, Charles Strite introduced the pop-up toaster, followed shortly by a more consumer-friendly version known as the Toastmaster, which for the first time cooked both sides of the bread at the same time.

Such was its success that toaster sales in the US grew from 400,000 units in 1922 to 1.2 million by 1930. Fully automatic toasters were introduced in the 1940s, inspiring further product innovations such as Kellog's Pop-Tarts and pre-sliced bread. In the 1980s, toasters with wide slots were designed to accommodate the growing consumer fashion for bagels at breakfast.

The received wisdom that everything needs to become a commodity should be re-examined. Surely bottled water and coffee are commodities, but the experiences of Starbucks and Evian suggest otherwise. Scott Paper and Procter & Gamble do not treat the seemingly unexciting toilet paper product as a commodity.

Far from it: they spend a lot of research and development money trying to improve these capital-intensive products. The fact is that the future value of a product is unknowable. What may have been a low-value item at one time could become something of higher value later. Coal tar, for example, was a waste product of the mines. It is now an important ingredient in the synthetic dye industry.

The danger of current thinking is that executives take it as read that their products are likely to become as commoditised as a toaster. This may then become a self-fulfilling prophecy, as they will spend less time and money thinking about further innovations.

Yahoo!, for example, narrowed its business mind in this way when it decided, in sharp contrast to its rival Google, that internet search technology was likely to become commoditised, and therefore it chose to put more effort into media development.

Of course, a declining price often means that there are too many substitutes in the market. However, the market might also be signalling for more innovative versions of the same thing. In fact, as prices get cheaper more customers move into the market, each often wanting to use the product in different ways.

The myth of commoditization
Michael Schrage
MIT Sloan Management Review, Winter 2007

This article was first published on World Business

blog comments powered by Disqus