Commodity products are those that are very similar to other products of the same kind, offered by different manufacturers. For instance, sugar is a basic product that falls into this category. Since commodity products are easily interchangeable, no company has a better chance of controlling its supply rate and price level than a competitor in the same industry.
While a commodity product is usually a raw material, a finished good is the product that is sold to consumers. The quality of the raw material may vary slightly, but it is essentially the same for all producers. To trade on an exchange, the raw materials must meet certain minimum standards, which are also referred to as basic quality.
Marketing a mass-produced product versus a luxury brand like Apple is a completely different ballgame. While consumers are willing to pay a high premium for high-interest, unique products like the iPhone 6, commodity products are perceived as almost indistinguishable from competing products in the market. This often drives companies to compete on the basis of a lower price.
Frequently Asked Questions
What is a commodity product?
A commodity product is a basic good that is interchangeable with other similar goods offered by different manufacturers. Raw materials used to produce finished goods can be considered commodity products.
What is the main difference between a commodity and a finished product?
The main difference between a commodity and a finished product is that a commodity is a raw material used to produce finished goods, while a finished product is what is sold directly to consumers.
How can companies differentiate themselves when selling commodity products?
Since commodity products are almost indistinguishable from each other, companies often try to compete on the basis of price to win over consumers. However, some may utilize selective branding models to stand out in the crowded market.
Commodity products have their place in the market as basic goods used in commerce, and they are often utilized as inputs for the production of other goods or services. Understanding the difference between commodity and finished products can help businesses develop effective marketing strategies that compete with their peers.