Success in the past always becomes enshrined in the present by the over-valuation of the policies and attitudes which accompanied that success.

—Bruce Henderson

Commoditization is often seen as the kiss of death for an industry. Boding ominously for profit margins, it brings slowing growth, falling prices, and increasing competition. In recent years, the process of commoditization has accelerated. Company life cycles have halved in the past 20 years: markets mature faster and incumbents are more and more at risk of commoditization. (See “BCG Classics Revisited: The Growth Share Matrix,” BCG article, June 2014; and “Adaptability: The New Competitive Advantage,” BCG article, August 2011.)

But does commoditization have to be bad for every company? While many fail to navigate this commoditization process effectively, others are able exploit it and flourish. Take the case of Wal-Mart, which faces rapid commoditization in the retail industry. By adopting a low-cost approach through scale and efficiency, the retailer was able to achieve a five-year (2009 through 2013) total shareholder return of nearly 10 percent even as many other big-box retailers were being forced into bankruptcy. Or consider Apple’s success in the highly commoditized PC industry. Utilizing a well-tuned differentiation strategy focused on design and user experience, Apple captured 28 percent of global PC profitability with market share of only 6 percent in 2014.

What enables companies such as Wal-Mart and Apple to flourish under conditions of commoditization while others stagnate or perish? As these examples suggest, there is more than one approach to escaping the doghouse of commoditization. Success lies in choosing the right one to suit your particular situation. The first step toward this determination is to understand when and how commoditization is happening.

Drivers and Signals of Commoditization

Commoditization occurs when the market perceives products to be substitutable. Two common factors drive this substitutability. The first is the emergence of a standard design or technology in the marketplace. Initially, multiple technologies compete to become the market standard. As the market matures, companies converge on one standard, bringing greater parity across offerings. For example, when Gillette introduced its multiblade Mach3 system into the men’s shaving market, its offering was clearly differentiated from single-blade competitors. However, competitors adapted to the new multiblade standard: Gillette’s sales growth flattened, and prices were squeezed to maintain market share.