What Does Commoditized Mean?

By Keith Noonan – Updated Dec 13, 2024 at 10:50 AM

Key Points

New products have a profit boost initially, then margins fall as competition increases.
Commoditization forces prices lower and companies to compete primarily on cost.
In high-commoditization sectors like smartphones, most profits are slim per unit.

When a new kind of product is launched, it often fosters a window of strong pricing power and profit margins. But this doesn't last forever. As the product category attracts more entrants and goes through more iterations, it becomes increasingly likely that the category will become commoditized.

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Person shopping in supermarket. — Image source: Getty Images.

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Product Life Cycle

The progression of an item or service from being made available to consumers to finally being taken off of the market.

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About the Author

Keith Noonan is a contributing writer at The Motley Fool covering technology, consumer goods, and other sectors. He holds a bachelor’s degree in English from Boston College.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.