On value chains, commoditization wars, and synergy

In the Robert Gair post (#3), the influences on supply chain fights for domination were mentioned. I would like to expand a bit more on this tricky subject, and review the opportunity made possible by Highcon's novel technology.

In actual value chains there is a tendency for key links (infrastructure makers, manufacturers, sellers, retailers, consumes etc.) to try and gain a dominant position, with the following characteristics:

·         Maximal pricing power possible

·         Ability to convert all other players to commodity makers. Commoditization means the prime or only selection criterion is price.

Before Gair's invention, the power was in the hands of the retailer. The retailer was the only entity to select and portion the goods, to communicate with the consumer, to pack and price the final sale. Manufacturers tried to establish footholds in the consumer's heart via advertisement, branding etc. (as they do today). Gairs' folding carton box gave them a perfect vehicle to portion, communicate, brand, protect and promote their products directly to the consumer. In the following years, manufacturers used this opportunity to take increasing command on the value chain, as manifested by the proliferation of the self-service stores. The retailers gained an advantage only when a new tech revolution – the bar-code – became common - however this is beyond the scope of this blog.

Commoditization is considered by many CEO's to be an ultimate threat. In printing, it is common to compete on price in order to gain business. Vendors continuously add capabilities and features to their products, but these innovations tend to quickly diminish to commodity via fierce competition. For printing vendors there is value in large batches, where efficiency is maximized; Press manufacturers respond to this by accelerating the press speeds, achieving on-going cost-per-page reduction. However this trend has limited horizon, with some hard cost floor drivers.

From the point of view of consumer product makers and retailers, the large-batch efficiencies are nice for the bottom line, but many times limit the entire value-chain ability to respond to smaller niches.

However the ability to respond to smaller target audiences groups' needs, to closely "hug" the demand curve with targeted offerings, is always there, is always luring with significantly higher pricing power. So retailers respond by reviving the in-store service, with bakeries, cooked food, deli and other services – highly profitable, but with the same issues known a generations ago – cost, quality, freshness, waste etc.

Digital printing and package-making holds the promise for manufacturers and retailers to offer targeted variety – at mass-manufacturing costs. This potential of digital printing has been captured only in the periphery of the consumer market (e.g., photo-albums), but not in main markets; digital packaging technology, as offered by Highcon, is brand-new.

For such possibilities to materialize, value-aware people in consumer market value chains – marketers, product managers, strategic planners – must demand directly from print and package makers what they need – ability to print and pack small quantities, at a moment's notice, directly from the digital file, in timely response to the whims of the market segments. This will enhance the profit, satisfaction, and stability of the entire value chain. This is the real synergy promise of digital.

An excellent review of the opportunity can be found at an article by Barb Pellow in Whattheything.
On cost value chains limitations please see the chapter "The Tyranny of Low Price" in the marketing guru Seth Godin's blog.