Be the industry leader in a commodity industry by focussing on strategy.

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0 | P a g e University of Amsterdam

Amsterdam Business School MBA 2011 - 2013

Thesis

Be the industry leader in a commodity industry by focussing on strategy

Student: Susanne van der Mark 10297480

s.vdmark@yahoo.com

Supervisor: Prof. Dr. Jean L. Johnson Strategy & Marketing

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Abstract

Commoditization is something all firms sooner or later have to deal with. It has become a vital aspect in the life cycle of each firm. When the product and service offering is not

perceived as being differentiating, customers make their purchase decision based on price and are likely to switch between different brands. As a result, firms tend to focus on price when they operate in a commodity industry. This paper states that a firm operating in a commodity industry should focus on its strategy and not automatically lower its prices. When a firm completely focuses on one strategy it will be possible to become the industry leader and distinguish from its competitors. However, it’s important to first analyse the client needs and segment possible different target groups into separate business units. Only this way, the right strategy to focus on can be chosen. This research shows that companies can have a different strategy for each business unit based on the needs of the clients. When customers are price-consciousness and want a standardized product with no need for flexibility operational

excellence is recommendable to focus on. Clients with a need for flexibility and customized

products and services should be served based on customer intimacy. With product leadership clients can be served with leading-edge and innovative products.

Key to a successful execution of the strategy is that the firm should be prepared to align the entire operating model (the company’s culture, business processes, management systems and IT systems).

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The traditional cycle of growth, maturity followed by commoditization and decline as final stage is something each company wants to avoid. However, commoditization is something all firms sooner or later have to deal with. If a firm does not offer a real customer benefit or product differentiation, customers, as they become knowledgeable, are likely to switch to competition rather than stay with a firm that is apparently overpriced for the services it offers (Rangan and Bowman, 1992). In addition, in due course almost any product can be

re-engineered or cloned and patents and copyrights can normally protect a product only for a limited time (Boomer, 2007). What exactly is commoditization? And why do some firms get caught up in the commoditization trap while others survive and transform themselves, beat this trap and manage to grow again? Is lowering price the only option or are there other solutions to escape commoditization?

Commoditization is a widely covered topic in the academic literature and much research is conducted on how to avoid and beat this phenomenon (Walsh, 2010; Rangan & Bowman, 1992; Boomer, 2007; Robinson, Clarke-Hill, and Clarkson, 2002; Prahalad & Ramaswamy, 2004; Fang, Palmatier, & Steenkamp, 2008, Reinmann et al, 2010). When a firm operates in a certain stage of commoditization, but wants to improve its competitive position and increase customer loyalty it needs to follow a specific strategy. There are many different strategies applicable and it’s therefore important a firm thoroughly analyses its situation before deciding which direction it wants to take. Robinson, Clarke-Hill, and Clarkson (2002) for example suggest that service and relationship management are key strategies used by companies to escape the commodity trap and gain competitive advantage. Firms must seek methods of differentiation if they wish to break out of the commodity trap of blind allegiance to cost leadership as a generic strategy. Relationship management can be a means of creating differentiation advantage in a traditionally cost orientated sector.

Porter (1985) states with his differentiation strategy that a firm can ask a premium price and create client loyalty at the same time when the product offering is unique to the buyers and goes beyond simply offering a low price. According to the strategy, maintaining a premium price strategy exceeding any added cost of being unique is fundamental for a differentiator to achieve superior performance. Schumpeter also believes that price is not the correct measure to beat the competition with. His “creative destruction” theory explains that price competition

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5 | P a g e is not the kind of competition which counts. Competition from the new commodity, the new technology, the new source of supply and the new type of organization is what counts. (DeLong & Bradford, 2007).

Not everyone believes in the traditional cycle of commodity. Rangan and Bowman (1992) challenged the conventional belief that product commoditization is inevitable and

accompanied by deteriorating profits. They note that firms in a commodity market can innovatively break the cycle and return to profitable levels. Many firms in an increasing number of commodity businesses are becoming consistently profitable by knowing how and when to differentiate their products through innovation, service, and customer partnerships. While commoditization of an industry may seem inevitable, the better-managed firms find a way to make money in the commodity cycle. Rangan and Bowman propose the firm follows a tactic that depends on the state of commoditization.

Levin (1980) takes it even one step further and states that there is no such thing as a commodity. All goods and services are differentiable. The generic product is identical, the offered product makes the difference. When the generic product is undifferentiated, the offered product makes the difference in getting customers and the delivered product in keeping them. While differentiation is, amongst other things, apparent in the features or service intensity of intangible products, differentiation consists as powerfully in how one operates the business. According to Levin, the way the marketing process is managed may reside the opportunity for many companies to escape the commodity.

B. Research question

It becomes clear that there are different elements to take into account when looking into commoditization. Firms have several possible strategies to consider depending on their situation and state of commoditization. Operational excellence, customer intimacy and product leadership (Treacy and Wiersma, 1993) are examples of strategies a firm can choose when it wants to beat or avoid the commodity trap.

I want to write my thesis about the commodity trap all firms sooner or later have to deal with, and depending on their product and service offering as well as on their market situation, which strategy will fit their situation best. In addition, I want to focus on firms that don’t have the option or don’t want to lower their price. There are several circumstances which force companies to keep up their price level (for example shareholder pressure or already operating as cost leader), and thus another strategy needs to be chosen. This usually involves a service

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6 | P a g e transition strategy (Fang et al, 2008) and will impact every process of the firm. This also means that the firm is willing to invest in a sustainable and long term strategy, which makes it more interesting for me. In addition, Rangan and Bowman (1992) state that commodization of an industry is dependent on how the leading players deal with it themselves. Pace of

commoditization quickens when the market leaders lower their prices. This leaves only a few niche markets for product differentiators. On the other side, when the leader creates a service-oriented climate and opposes to dropping the price, the decline is usually slowed.

My research question is:

Which strategy should companies operating in a commodity market, not willing to lower their prices, execute to maintain profitable?

C. Case study

To be able to answer my research question, I will conduct a case study with one firm. LeasePlan is an international fleet and vehicle management company I work for. Within LeasePlan it is often said the firm operates in a commodity market and we need to find ways to escape the commodity trap. I want to know if this is really the case and will conduct nine in-depth interviews with managers working for LeasePlan. They will be asked to evaluate the situation of the firm (is LeasePlan operating in a commodity industry?) and give their opinion on which strategy LeasePlan should focus. Based on the outcome of the interviews a

recommendation will be given.

LeasePlan is a global fleet and vehicle management company of Dutch origin and offers financing and operational fleet management services. The firm operates in 31 countries and is worldwide market leader with around 1.3 million multi-brand vehicles (leaseplan.com). LeasePlan has shown steady and profitable growth the last few years (see appendix figure 2 for key figures LeasePlan). The firm has a growth strategy in place and is focussed on acquisition and expanding abroad (LeasePlan AP 2012).

There are, however, several elements which make it hard for LeasePlan to grow. First of all, the cost of funding is high (higher compared to its competitors) as the company has a dependence on wholesale funding. LeasePlan is a premium brand with a premium price and due to its funding method lowering prices is not an option. Secondly, the firm operates in a commodity market which means they have difficulty distinguishing from its competitors.

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7 | P a g e The challenge for LeasePlan is to continue growing in the commodity market and remain profitable. However, a clear strategy how to achieve these goals in the current market circumstances is not present. In addition, LeasePlan mainly focuses on the current company and maximizing profits and by doing so it subject it selves to commoditization (Boomer, 2007). Several programmes to stimulate growth are in place, like a procurement excellent programme and a service excellence programme, but a focus lacks and this could harm their growth strategy.

D. Service as a commodity

Fang et al (2008) found that companies with greater reliance on the service part of their business reportedly achieve better return on sales and improve their value. LeasePlan heavily depends on the service part of their business and offering a service does not mean the firm is immune to commoditization. Services become more standardized and like goods, services also become commoditized (Weiz, 1996; Ping & Gilmore, 1998; Prahalad & Ramaswamy, 2004). As noted before, commoditization is a widely covered topic in the academic literature and much research is conducted on how to avoid and beat this phenomenon. However, not much research is done on commoditization of services. The focus is on product and industry commoditization. LeasePlan delivers a homogenous product (the lease car) and the service part of their business is therefore the only way to distinguish from its competitors. This thesis will focus on commoditization of services.

E. Structure of the paper

The structure of the paper is as follows: A detailed literature review will follow in chapter II. First step is to describe commoditization, evaluate the different stages of commoditization and give an overview of the different strategy options a firm has to avoid or beat the commodity trap. Chapter III will give a thorough description of LeasePlan followed by the methodology used to confront the theory with a case study in chapter IV. The analysis of the nine in-depth interviews with managers working for LeasePlan is also discussed in chapter IV and

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II. Literature Review

This chapter provides an overview of the existing literature in the following areas. 1. Description and different stages of commoditization

2. Service a commodity

3. Justification of a premium price strategy 4. Strategy options to differentiate

A. Commoditization

It is important to first clearly describe what commoditization is and how does a firm recognize it. The term commodity is much used in the academic literature and there seems a broad consensus as to a definition of commodity products. Commodity products are those products perceived in the market by both buyers and suppliers, as being homogeneous or

undifferentiated (Unger 1983, Folbre 2008, Rangan and Bowman 1992, Robinson, Clarke-Hill and Clarkson, 2002, Sinclair and Seward 1988). ‘The products of one firm are seen by the market as generically and functionally identical to those of the competition’ (Robinson,

Clarke-Hill and Clarkson, 2002). Commodities are products that are sold on the basis of their cost, not their value (Chesbrough, 2011).

There are enough early warning signs to recognize commoditization; availability of ‘me-too’ products, the customer’s reluctance to pay for features and services accompanying the product and pressure on prices and margins in general. However, not the product itself but the

product-market combination is the actual commodity. Regardless of the product, it is the market dynamics that distinguish a commodity. Steadily and deliberately as the market transforms into a commodity, many buyers begin to perceive the product and its suppliers to be homogeneous and price becomes the predominant buying criterion (Rangan and Bowman, 1992). If a firm does not offer a real customer benefit or product differentiation, customers, as they become knowledgeable, are likely to switch to competition rather than stay with a firm that is apparently overpriced for the services it offers. Price becomes the most important decision criteria for a buyer.

Martin Schwirn (2002) presents three main types of commoditization:

1) Real commoditization: this is the purest form of commoditization and occurs when competitors’ products are perfectly interchangeable. It affects products whose physical and chemical characteristics are the primary purchase criteria (eg. sugar or salt).

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9 | P a g e 2) Quasi commoditization: Product differences exist, but customer are either indifferent or do not understand the differences. The differences do not affect the customers’ purchase

decision. This type of commodity may behave like one in the large customer segments, but retain their identities in smaller specialized markets that pay attention to differences. (eg nails and screws)

3) Perceived commoditization: Product differences continue to be important in some

situations and applications, however, according to the consumers’ perception the product is a commodity. In such a market, consumers can’t find parameters to judge the product due to limited knowledge, the inability to assess a large number of technical factors, or the disability to discern which characteristics are important for specific applications. As a result, the

consumer is purely focused on price when they make a purchase decision.

Most academic research focuses on product commoditization, however, there’s research indicating that commoditization is not limited to a product or a single industry but applies to an increasing number of industries (Weiz, 1996; Greenstein, 2004; Olson & Sharma, 2008; Reimann et al 2010). Weiz argues that commoditized industries are characterized by mature technology and little innovation. Reimann et al. (2010) distinguish four aspects of

commoditization to assess if an industry is commoditized. Product homogeneity, price sensitivity, switching cost, and industry stability jointly define an industry's commoditization level. See figure 2 below:

Product homogeneity: Commodity products are identical in quality and performance to those

of its competitors. High product homogeneity means that products are perceived in the market as being interchangeable. This is a characteristic of commoditized industries.

Commoditization level Product homogeneity

Price sensitivity Switching costs

Industry stability

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Price sensitivity: When buyers are looking for the best price for a standardized product, high

price sensitivity arises in commoditized industries. Significant price fluctuations occur in commoditized environments and contribute to the increased price-consciousness of buyers.

Switching cost: Switching cost is low in commoditized markets. This represents a

combination of buyers' economic risk, evaluation, learning, set-up, benefit loss, monetary loss, personal relationship loss and brand relationship loss costs.

Industry stability: In highly commoditized competitive environments the industry stability is

high. This is reflected in predictable market demand, a consistent competitive structure, and few changes in the set of customers.

The literature discussed above describes product and industry commoditization. Davenport (2005) describes process commoditization, but hardly any research is published about commoditization of services. As firms also deliver services it is important to further discuss this element. Services are generally thought to be inherently and easily differentiated, yet some services clearly can move toward standardization (Karmarkar, 2004; Sawhney,

Balasubramanian & Krishnan 2004; Davenport, 2005) and come up against commoditization. A firm is not immune to commoditization just because its offering is a service. Pine and Gilmore (1998) did conduct research to this phenomenal and they state that not only products are commoditized, services also increasingly become a commodity. Prahalad & Ramaswamy (2004), note that differentiating offerings appears challenging and both products and services are facing commoditization as never before. Companies can certainly not escape being super efficient. However, if consumers do not see any differentiation they will buy smart and cheap. Ping and Gilmore (1998) take it one step further and state that the next step to avoid

commoditization of services is to stage experiences. Commodities are fungible, goods tangible, services intangible and experiences memorable.

Henri Weiz (1996) conducted a research programme to analyse commoditization in service markets (air transportation, long distance telecommunications, and refined petroleum). He argues that commodization of a service is possible and mainly driven by excess capacity in the market.

B. Different stages of commoditization

Rangan and Bowman (1992), state that many firms in commodity businesses are becoming consistently profitable by knowing how and when to differentiate. Although commoditization

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11 | P a g e of an industry may seem inevitable, the better-managed firms find a way to make money in the commodity cycle. While an industry might steadily slide to commodity status, not all firms operating in that industry should necessarily suffer the same fate. According to Rangan and Bowman (1992) as well as Henry Weiz (1996), these companies understand that

commoditization can be a self-fulfilling prophecy, in which lower price, profits, service and customer loyalty interlock in a cycle of decline. The authors propose to first look at state of commoditization. Weiz (1996) also notes it’s important to know where the company stands in the dynamics of commoditization as this affects future profitability. See figure 3.

Figure 2: state of commoditization (Source: Rangan and Bowman, 1992)

Instead of pursuing a differentiation strategy, some firms might seek a low-cost position. By providing customers a low price such firms are in a unique position to address the needs of the ‘price-sensitive’ business (Porter, 1985). Rangan and Bowman captured this in figure 3: a two dimensional matrix, with one axis representing price and the other the service that

accompanies the product. The equity axis shows where a company charges a price that reflects the value of the service it provides. Quadrant C represents a core, plain product not accompanied by much augmented services and the price paid by the customer is relatively low. On the other hand, quadrant B represents a product accompanied by intensive value-added services, for which the customer pays a higher price. All locations above the equity diagonal signify that the company is able to extract a higher value than the services it renders. This means the customers perceive the firm’s product as being superior to competitive

offerings or substitutes. Positions below the equity diagonal usually indicate that the firm is B D A C High Low Low High Price Service Equity axis Power axis

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12 | P a g e unable to extract the full value of the services it renders with its product. In quadrant D, the company essentially gives away all its services free. The cross diagonal represents an axis of power: the firm is more powerful (differentiated) in quadrant A and the customer in quadrant D.

Position A would be the most advantageous, based on product feature/function superiority and will likely lead to the highest profits. Position B and C ensure an adequate and fair return to the firm, with B emphasizing differentiation through augmented services and C emphasizing a low cost manufacturing approach. Position D is rarely consciously adopted by any firm. The customer and competitive environment drag a firm reluctantly down to that quadrant. In the short run, a firm may be able to survive in this position, but it is guaranteed to lead to losses in the long run. No business can afford to give away services without increasing prices

correspondingly. So depending on the state of commoditization a suitable strategy needs to be chosen.

For this thesis, the Rangan and Bowman model (1992) will be used to determine the stage of commoditization. The authors also have four feasible strategies a firm can use to move or maintain its position in the matrix, but these will not be further discussed. The strategy options as discussed by Treacy and Wiersema (1993) will be used in this thesis as they are widely accepted and successfully implemented by several large international companies (for example by Intel, Walmart, Nike, Toyato, Dell Computers).

C. Strategy options to differentiate

As different levels of commoditization can be identified the next step will be to find and apply the right strategy to avoid or beat the commodity trap. Treacy and Wiersema (1993) advocate that a successful firm should narrow their business focus on delivering superior customer value – more value than its competitors. Customers used to judge the value of a product or service based on a combination of quality and price. This is no longer the case as today’s customers, by contrast, have an expanded concept of value that includes convenience of purchase, after-sale service, dependability, and so on. This does not automatically mean that companies have to meet all these different customer expectations. On the contrary, companies should narrow their business focus, not broadening it, and concentrate on delivering superior customer value in line with one of the three so-called value disciplines: operational

excellence, customer intimacy and product leadership. A successful firm will excel in one of these 3 disciplines and meet the industry standards of the other two. Important to note is that

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13 | P a g e although firms might want to concentrate on only one value discipline, they should remain competent in all three areas.

Operational excellence: Provide customers with reliable products or services at competitive

prices and delivered with minimal difficulty or inconvenience. The objective of a company following this strategy is to lead its industry in price and convenience. Value is created by offering customers a low-cost product made possible through efficiency and cost reductions in operations. Firms adopting this strategy build their operations around information systems that emphasize integration and low-cost transaction processing.

Customer intimacy: Segment and target markets precisely and then tailoring offerings to

match exactly the demands of those niches. Companies that excel in customer intimacy

combine detailed customer knowledge with operational flexibility so they can respond quickly to almost any need, from customizing a product to fulfilling special requests. As a

consequence, these companies engender tremendous customer loyalty. Value is created by focusing on understanding customers and meeting their specific needs. This can be expensive, but customer-intimate companies are willing to spend now to build customer loyalty for the long term. They typically look at the customer’s lifetime value to the company, not the value of any single transaction.

Product leadership: Offer the customers leading-edge products and services that consistently

enhance the customer’s use or application of the product, thereby making rivals’ goods obsolete. Value is created through innovative design and brand image. Firms with this strategy challenge themselves in three ways. First, they must be creative more than anything else. Second, their ideas must be commercialized quickly, so all their business and

management processes have to be engineered for speed. Third and most important, product leaders must relentlessly pursue new solutions to the problems that their own latest product or service has just solved. Product leaders avoid bureaucracy at all costs and managers make decisions quickly.

Treacy and Wiersema (1993) stress that companies that push the boundaries of one value discipline while meeting industry standards in the other two, gain such a lead that competitors find it hard to catch up. This is largely because the leaders have aligned their entire operating model (the company’s culture, business processes, management systems, and computer platforms), to serve one value discipline. Knowing what they want to provide to customers, they have figured out what they must do to follow through. And with the hard work of

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14 | P a g e transforming their organizations behind them, they can concentrate on smaller adjustments that produce incremental value. Less focused companies must do far more than simply tweak existing processes to gain this advantage.

As discussed previously, Reinmann at all (2010) derived four distinctive aspects of

commoditization (see figure 2) that define the level of industry commoditization and they note that the effectiveness of the three value disciplines may vary across various levels of

commoditization. The authors emphasize that a commoditization assessment can become a vital part of a firm's efforts to address evolving marketing competition. They state that the critical factor influencing which value discipline is best suited to the environment is the customer itself. Customers evolve as markets evolve which may ultimately lead firms to assume different strategic positions and effectively drive their performance. In industries with high commoditization levels firms can respond to environmental challenges with several strategy levers to fight the commodity trap. In this situation, a stronger competitive focus on customer intimacy seems to have the greatest impact on performance. In lower commodity environments, a strategy that is balanced across the three value disciplines of operational excellence, product leadership, and customer intimacy is critical to driving performance.

D. Price and commoditization

When an industry is commoditized, price becomes the most important decision factor for the buyer as there is no difference between in the product offering. Rangan and Bowman (1992) state the pace of commoditization quickens when the market leaders lower their prices. This means that commodization of an industry is dependent on how the leading players deal with it themselves. When the industry leader decided to lower its price, this can negatively affect the whole industry. Chen, Sun, and Singh (2008) describe the Marlboro Friday case in which parent company Philip Morris announced to cut the price of a package of Marlboro cigarettes. On the day of the announcement, the stock prices of Philip Morris fall 23%, knocking off billions of dollars in market value. Second, the fallout from the event spread far beyond the tobacco industry as several other major household brands, including Heinz, Coca-Cola, Quaker Oats and Procter & Gamble collectively lost USD50 billion in value on the same day. The rationale for the reaction was that competing with generics on prices by reducing the price gap was a signal of overvaluation of the brand-intensive stocks.

In his differentiation strategy, Porter (1985) states that a firm can ask a premium price (a price above the average price in the industry) when the product offering is unique to the

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15 | P a g e buyers. A firm should follow a differentiation strategy and provide a unique offering that is positively perceived by customers. According to the strategy, maintaining a premium price strategy exceeding any added cost of being unique is fundamental for a differentiator to achieve superior performance.

Behind Porter’s (1985) differentiation strategy is the assumption that buyers will not pay for value that they do not perceive, no matter how real it may be. The price premium a firm commands will reflect both the value actually delivered to its buyer and the extent to which the buyer perceives this value. Porter (1985) argued that “a firm that delivers only modest value but signals it more effectively may actually command a higher price than a firm that delivers higher value but signals it poorly”.

Weiz (1996) notes that in commoditized markets the relationship between price and costs is complex and highly dynamic. Even when costs are declining significantly, competitive pressure can drive prices down further and farther.

It becomes clear that price is an important element, but not necessarily the only element for a firm to compete on. The above theory shows that a premium price can be beneficial for a company. Lowering the price can work out negatively and even harm the whole industry.

III. LeasePlan as case study A. General company information

LeasePlan is a global fleet and vehicle management company of Dutch origin headquartered in Almere, the Netherlands. The firm’s full service offering consists of financing and

operational fleet management services (see appendix for funding methods). Established 50 years ago, the firm has grown to become the world’s leading fleet and vehicle leasing company with over 85% of its 6,000 employees operating outside of the Netherlands. LeasePlan manages around 1.3 million multi-brand vehicles and provides fleet and vehicle management services in 31 countries across the globe (see appendix figure 1 for overview of all countries). The firm has a general banking license in the Netherlands since 1993 and is supervised by the Dutch Central Bank. The shares of LeasePlan Corporation N.V. are held by Global Mobility Holding B.V., a company owned by the Volkswagen Group headed by Volkswagen AG (50%) and Fleet Investments B.V. (50%), an investment company owned by German banker Friedrich von Metzler.

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16 | P a g e Mission & vision: ‘We want to be recognised as the global leader in fleet and vehicle

management for companies and the public sector. This is reflected in our mission statement: be a partner to our clients in providing the best and most efficient fleet and vehicle

management solutions’.

 Positioning: ‘The proactive service excellence partner in fleet and vehicle management’.

 Brand promise: ‘It’s easier to leaseplan’

 Values: Commitment, Expertise, Passion, Respect

LeasePlan’s business model operates across the automotive value chain. As a service integrator, the firm manages a wide variety of business activities in the automotive value chain. They perform independently or through outsourced partners all activities needed for clients to operate a vehicle fleet. From purchasing as the first step to remarketing of the vehicles at the end of the contract. Except for vehicle manufacturing and distribution, the firm is involved in all of the areas as shown in figure 4. LeasePlan is independent of vehicle brand and provides services for vehicles of a wide variety of makes and models in line with the needs of their clients. (LeasePlan Annual Plan 2013)

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Figure 3: Business model LeasePlan (Source: LeasePlan Annual Report 2012)

The 31 local operating LeasePlan companies provide front-line fleet management services to diverse client segments. The Managing Board is based in Almere and consists of the CEO, CFO and COO. The Corporate Centre comprises central functions to the operating countries such as financial rules and regulations, global policies and a group-wide strategic framework. There are also a number of group activities such as LeasePlan Bank and Euro Insurances. (See appendix figure 3 for the organisational structure) (LeasePlan Annual Plan 2012).

LeasePlan is a decentralized organisation. This means that daily operations and decision-making responsibilities are delegated to country level, allowing top management to focus more on major decisions. Within the strategic framework set by the corporate centre, each

Manufactuering Distribution Purchase Financing Insurance Maintenance Management Fuel Management Accident Managament Rental Vehicle Disposal & Remarketing

Activities in the value chain in which LeasePlan is not active LeasePlan in-sourced

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18 | P a g e country has a lot freedom. Countries make their local strategy and are used to making their own decisions. One of the reasons for a decentralized structure is that the countries can maintain their entrepreneurial spirit.

In 2012, LeasePlan achieved a net profit of EUR 241 million, which is a 7.4% increase compared to 2011 (+EUR 16 million). (See appendix figure 2 for overview of the financial results).The strongest contributors to profit is generated by LeasePlan’s core business model components of management fees, damage risk retention and lease services. Furthermore, the firm has a diversified funding strategy. In 2012, seven public unsecured debt capital market transactions and several private placements took place, to a total of EUR 2.8 billion.

(LeasePlan Annual Plan 2012)

The client base of LeasePlan is segmented into small, medium and large clients and this is based on fleet size. All different segments are served with the LeasePlan brand, there are no other brands. Below the definition for the 3 different customer segments based on fleet size: o Small: 1-25 vehicles

o Medium: 26-100 vehicles o Large: > 100 vehicles

B. Strategy

LeasePlan has a growth strategy in place. The firm focuses on sustainable growth in

traditional and emerging fleet markets, targeting market-leading positions in all the countries they operate in as well as growing their international fleet business. The firm believes that it can generate long-term growth opportunities through geographic expansion and will do so at a moderate pace which takes market conditions into account. The Small and Medium Enterprise (SME) client segment is considered to be another growth area for LeasePlan. While SMEs are already part of the client base in some of the countries, penetration of this segment is still at an early stage in most markets. LeasePlan remains committed to its selective growth strategy even as difficult economic conditions persist globally. Figure 5 shows an overview of the LeasePlan strategy.

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Figure 4: Overview LeasePlan strategy (source: internal document)

1: Traditional growth: As market leader LeasePlan is well positioned to further grow their business through traditional approaches

- Organic fleet growth (LeasePlan International, Small and Medium Enterprise and geographic expansion)

- Organic services growth (Insurance penetration) - Non-organic growth (merger and acquisitions)

2: Operational Excellence: This needs to prepare LeasePlan for a more challenging competitive environment

- Efficient and effective operations (supplier and process optimization projects in place) - Flexible and agile IT systems (supporting ICT systems and projects)

- Leverage their scale (procurement and car remarketing projects)

3: Customer centric innovation: this is key to address the challenges of the tomorrow - Easier value propositions (new way of developing market propositions, roll-out of

consultancy services)

- From object to customer orientation (replacement of CRM system) - Business model innovation (big data)

4. Right people and culture: Ensuring the right people and building an innovative culture allows LeasePlan to execute on its strategy

- Talent management - Empowerment

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20 | P a g e - Innovative culture

(Source: Internal LeasePlan document 2013)

LeasePlan is a decentralized organization. The Corporate Centre provides a framework as described above and gives the local entities the freedom to operate within this framework.

C. Description of the case

To make sure LeasePlan is the correct case study for this research it is important to determine if the firm operates in a commodity market. To decide on the level of commoditization for LeasePlan several steps will be taken. First the model developed by Reinmann et al (2010) will be used to determine the level of industry commoditization. Second step is to conclude the state of commoditization by applying the Rangan and Bowman (1992) model.

Reinmann et all (2010) developed a model to assess the level of industry commoditization. Below the analyses:

- Product homogeneity: High product homogeneity. The products are perceived in the market as being interchangeable. They are identical in quality and performance to those of the competitors

- Price sensitivity: High price sensitivity. Majority of the clients are price-consciousness and looking for the best price. Clients are looking for the best price, but not a

standardized product. Level of standardization is fluctuates. A large fleet (>100 cars) needs usually flexibility from the leasing provider.

- Switching cost: Low switching cost. Clients can end the contract with one leasing provider and start using the next without extra costs involved. Switching between providers is easy and without consequences.

- Industry stability: High industry stability. The competitive landscape is consistent for the last years. No new players entered the market. Demand is predictable and the market saturated.

Based on the analyses above, it can be concluded that the level of commoditization in the leasing industry is high. Notable is the level of service is not included in the model. Reinmann et al (2010) only look at the product homogeneity. As LeasePlan operates in a service

industry, it is fair to also look at the service homogeneity. A highly commoditized industry has high service homogeneity. In this case, services are perceived to be identical and standardized and there is no difference in the level and execution of the service.

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21 | P a g e - Level of service: Medium service homogeneity. The level of service differs per

leasing provider, but there’s a hygienic level of the expected service. Some services are expected by the clients meaning there’s a level of standardization.

Looking at the level of commoditization in the leasing industry with level of service included, the conclusion remains that the leasing industry is highly commoditized. Based on the

literature, the following hypothesis can be set:

Hypothesis 1: LeasePlan operates in a highly commoditized industry.

The analysis of the industry shows that LeasePlan operates in a highly commoditized industry. The next step is to analyse the state of commoditization using the Rangan and Bowman (1992) model.

LP= LeasePlan

The firm’s product (lease car) goes together with intensive value-added services, for which the customer pays a high price. Customers does not perceive LeasePlan’s product as being superior to competitive offerings and differentiation happens through augmented services. LeasePlan is therefore positioned in the upper right corner (quadrant B) below the equity axis.

High

Low

Low High

Price

Service

Figure 5: LeasePlan’s state of ccommoditization (Source: Rangan and Bowman, 1992)

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22 | P a g e Based on the literature, the following hypothesis can be set:

Hypothesis 2: LeasePlan will be positioned in the upper right quadrant of the Rangan and Bowman (1992) overview.

As the industry level is determined (high commoditization) and the state of commoditization (high service, high price and no superior competitive offerings) the current strategy of LeasePlan needs to be analyzed.

The strategy as described above shows that LeasePlan wants to grow, but the firm does not have a clear focus in place as it wants to excel in all areas. LeasePlan’s strategy shows similarities with the Treacy and Wiersema (1993) theory. LeasePlan uses two of the three value disciplines as described by Treacy and Wiersema. Operational excellence and customer centric (intimacy) are used by both LeasePlan and Treacy and Wiersema. According to the theory from Treacy and Wiersema (1993), LeasePlan should realize that a successful firm should excel in one discipline and meet the industry standards of the other two. Although it is important to be competent in all areas, LeasePlan is fusing four disciplines and does not focus. According to the theory, a company should choose one value discipline that takes into account its capabilities and culture as well as competitors’ strengths in order to become an industry leader. Due to the lack of focus, LeasePlan is not able to deliver superior customer value. In addition to the growth strategy, the firm aims to strengthen its competitive position by focusing on three key areas.

1) The first focus area is built around the values and service proposition in line with the brand promise ‘it’s easier to leaseplan’. A global engagement programme is launched to embed it’s easier to leaseplan, the values and code of conduct in the daily work of the employees. 2) The second focus area is geared towards further development of innovative products and services to provide added value to its clients and to differentiate from its competitors. 3) The third focus area is to emphasize the price competitiveness. LeasePlan wants to ensure its clients that we remain a trusted business partner, offering value which is in line with world class products and client service.

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23 | P a g e This means that LeasePlan, operating in a commodity market, has a strategy with four

disciplines and on top of that three focus areas. It becomes clear that the firm does not have a focus and tries to do as many things as possible at the same time.

As discussed above and based on the literature, LeasePlan operates in a commodity market. It is therefore expected that price is an important decision criteria for clients. When LeasePlan wants to provide its customers reliable products and services at a competitive price level delivered with convenience (it’s easier to leaseplan) the firm should focus on the value discipline Operational Excellence. Based on the literature, the following hypothesis is set: Hypothesis 3: LeasePlan should focus on the value discipline Operational Excellence when it wants to grow.

D. Porter analyses

Porter (1980) developed the five forces framework to derive forces that determine the competitive intensity and therefore attractiveness of a market. When the competitive forces are very strong the industry will be less profitable. The tool is useful to apply to LeasePlan as it analyses the structure of the industry on the one hand and predicts the industry evolution on the other.

See overview 1 for the five forces analyses of the leasing industry. It becomes clear that two forces have a negative impact on the profitability and attractiveness of the industry: The bargaining power of suppliers and the intensity of competitive rivalry. This is due to the lack of product differentiation (products are easy to replicate) in a slow growth market. Leasing firms don’t have the capability to distinguish their products and services and offer additional value to the buyers. This leads to a price competition between players in the market (lowest price per vehicle) and has a negative impact on the profitability of the industry. Combine this with the strong position of the suppliers and the slow growth in the emerged markets and the industry will need to beat the commodity trap.

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24 | P a g e Threat of new entrants (+)

 Economies of scale can be achieved with a large fleet (applicable in different areas such as: finance, car suppliers, rebate and bonuses).

 Large amount of capital is required to enter the industry (investment in new cars).

 Product differences are minimal and easy to replicate.

 All established large leasing companies have high client loyalty (LeasePlan Brand Awareness Survey 2013).

 Switching costs for buyers are relatively low. Buyers can easily switch to another provider when the agreed leasing period ends.

 High retaliation possible from existing companies, if new entrants would bring innovative products and ideas to the industry.

 Every party has entrance to the distribution channels. - New entrant could easily access suppliers and distributors.

 Few legal barriers protect existing companies from new entrants. There are increased governmental rules and regulations in the financial industry operational leasing companies also have to deal with.

 Leasing is a profitable industry.

 Possible entrants: captives, third party

intermediaries, Google, consultancy firms

Threat of substitute (+)

 Substitutes such as financial leasing, outright purchase, travel allowances, mobility mix are available. However, this could impact the quality of the usage and bear higher financial risks (repair and maintenance, residual values at own costs).

 Available substitutes often focus on one area (just finance, management only or consultancy).

 Switching costs for buyers are relatively low. Buyers can easily switch to another provider when the agreed leasing period ends. - - Buyers often make use of several leasing suppliers.

 Excellent service and mitigation of risk should prevent customers from looking for alternatives and switching.

 Leasing does not appear on the balance sheet of a company. This might change in the near future (a change of the lease accounting standards) and substitutes as outright purchase will most likely become more interesting.

Bargaining power of buyers (++)

 Switching costs for buyers are relatively low. Buyers can easily switch to another provider when the agreed leasing period ends. Buyers often make use of several leasing suppliers.

 Buyers are price sensitive (due to the lack of product differentiation) and their purchase decision is often based on total cost of ownership

 There are many (potential) buyers.

 Large fleets buyers involve procurement during the tender process and this impacts the price and profit margins.

 Especially large international firms with large fleet can directly bargain for lower prices with car manufacturers/suppliers.

Bargaining power of suppliers (-)

 Not much product differentiation. Quality of the service, car and financial terms and conditions set by the supplier are key criteria in the decision making process of the buyer.

 Financing of the vehicles requires capital (and large investment) from the supplier.

 Many suppliers in the industry.

 Car manufacturers could give the end user better conditions compared to leasing companies. This is due to over capacity and price competition in the local market.

 Car suppliers dominant in some local markets also offer leasing services (this is called captives).  Lease companies offer multi-brand vehicles. Car

suppliers are not restricted to their own brand and are allowed to sell and lease different brands to buyers. As a result, competition from car suppliers increases.

See next page for Intensity of competitive rivalry

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25 | P a g e Intensity of competitive rivalry (++)

 Industry is very large but matured in most countries (slow growth industry). Penetration of operational lease is stabile in mature countries. Emerging markets such as Brazil, Russia, India and China are focus of the large leasing companies as these markets are growth potentials.

 Moderate number of competitors. A few large competitors, but most players are reasonably small  The size of the five large international leasing

firms does not differ enormously. There are five large players (LeasePlan, GE, ALD, Arval and ING) competing for the same consumer segments (medium and large). Car dealers and

intermediaries focus on small fleet.

 Due to strict (governmental) rules and regulations on the financial markets as well as the continuity of the economic crisis a consolidation of players is expected. This will increase the competition intensity.

 If a firm would decide to leave an industry it would incur huge losses. It would go bankrupt or stays in the industry for the lifetime.

 Customers are loyal to their brands.

 As a result of the financial crisis cost of finance increased for the leasing companies (to borrow money is expensive). In addition, the residual values of the vehicles decreased, so the industry has to deal with higher cost prices. Competitors capable of low finance costs combined with an increased risk on residual values can compete on price. This will harm the profitability of the other (large) players in the industry.

 As product differences are minimal en easy to replicate there’s pressure on the price and profit margins.

IV. Methodology

A. Research methodology

The research question stated in the introduction is: ‘Which strategy should companies

operating in a commodity market, not willing to lower their prices, execute to maintain profitable? To be able to answer this research question, this paper started with a detailed

theoretical framework about commoditization followed by a description of the three value disciplines from Treacy and Wiersema (1993) (operational excellence, customer intimacy and product leadership). In addition, a thorough description of LeasePlan as a case study is given. Next step is to develop the interview guide which will be used as the foundation for the discussions with nine employees from LeasePlan. Based on these interviews conclusions and recommendations will be presented in the final section of this thesis.

The choice for a qualitative approach is made as this allows an in-depth analysis. In addition, Yin (2009) states that case studies are appropriate for theoretical generalisations. According to Yin (1981) there are several reasons when a case study is the preferred research methodology: when asking ‘how’ or ‘why’ questions, when a topic is a contemporary issue, when the researcher has little or no control over occurrences and when investigation is done on a

contemporary phenomenon within the context of real-life cases. All these criteria apply to this thesis.

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26 | P a g e LeasePlan is chosen as the case study for this research as the firm meets all the conditions.

- LeasePlan is a service oriented firm assumingly operating in a commoditized industry. This is, however, based on the opinion of the individual and never thoroughly

researched.

- LeasePlan and its shareholders are focused on achieving high profit

- LeasePlan has a growth strategy in place. The challenge is to continue growing in the commodity market and remain profitable. However, a clear strategy and focus how to achieve this in the current market circumstances lacks.

- I work for LeasePlan and have therefore easily access to many different sources of information.

Ideally, more firms are involved in this case study. Due to time constraints this was not an option.

The research questions in the interview guide are based on the literature (see appendix for the guide). The interviews are based on a general script (semi-structured) as this gives the

respondent a lot of room for their own input. My role as the interviewer is the following: structure the interview, keep the focus and make sure we don’t deviate. Summarize and specify the answers, follow-up and probe.

The interviewees are not chosen randomly. They all have to deal with the current strategy and work for LeasePlan Corporation, the corporate centre. On LeasePlan’s request no employees working for the entities have been interviewed. In total, nine LeasePlan employees have been interviewed. This number of interviews is enough to give a solid recommendation. Ideally, more interviews are conducted, but this was not feasible due to time constraints and absence during the summer holiday.

B. Data collection

There are six options to obtain information for cases studies (Yin, 2003): direct observation, participant-observation, physical artefacts, documents, archival records and interviews. For this thesis the interview option used as it is expected this is the best possible source of information. In addition, there is also much information via internal documents and the intranet gathered.

The length of each interview was between 45-80 minutes and took place in a quiet meeting room. All interviews are recorded and notes were taken to ensure accurate reporting of the

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27 | P a g e responses. After conducting the interviews, the analyses to answer the research question could start.

C. Data Analysis

The analysis of the data is done in several steps. To be able to give a clear answer to the research question, three central themes are derived. First theme is commoditization, second theme is price and the third theme is strategy.

When analyzing the interviews, it appeared that there are several central topics per theme. Next step is therefore to sub-categorize the three themes. To be able to analyse the interviews in the most structured way, the information is plotted per topic per theme. Each theme will be discussed in more detail below followed by conclusions and recommendations in the next chapter.

Commoditization

Does LP operate in a commodity market? The overall majority says LP operates in a

commodity market. Only one respondent says LP does not operate in a commodity market, as the leasing market is difficult to enter and leasing companies can distinguish themselves. One respondent notes that LP operates in both a commodity market as well as the service market depending on the market maturity.

Which stage of commoditization?

All respondents plot LP in the upper right quadrant of the Rangan and Bowman quadrant. However, not all at the same position within the quadrant.

Although there’s agreement the prices are high, there’s not a unanimously believe the prices are too high. In addition, the overall opinion is that the service offering is good. (see Rangan & Bowman, 1992)

Is commoditization a problem? (is it urgent) Although a majority admits LP is positioned in a commodity market none of the respondents believe the stage of commoditization is a big problem. All respondents said that LP is still highly profitable and therefore there is no urgent need for change. There’s an acceptance the firm operates in a commodity market as the future outlook remains positive and the business model maintains profitable. There’s no sense of urgency.

Are there product & service offerings not a commodity?

All respondents note that LP has difficulty distinguishing itself from its competitors with its basic product and service offering as leasing itself is a commodity business. However, the general

opinion is that LP can make a difference by adding on different element (extra services) to its current offering. The services, aiming at the basic service offering, are commodities. When adding

(consultancy) services to the basic offering, LP can distinguish itself and beat the commodity trap. The product offering is basically all the different service offering together. This is also highly standardized. LP can distinguish itself by adding flexible services to this package. One respondent notes that the brand promise (it’s easier to leaseplan) can make the difference and can be the way out of the commodity trap. When clients and drivers experience easier in all aspects of the product and service delivery LP can distinguish itself.

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28 | P a g e Summary: LeasePlan operates in a commodity market. This is accepted by the managers and there’s no sense of urgency to beat the commodity trap. Although leasing is a commoditized industry, LeasePlan’s future outlook remains positive, and the board is not looking for (innovative) ways to get out of it. One way for the firm to distinguish from its competitors is by adding consultancy to the current standardized product and service offering.

Respondents also commented on the model of Reinmann et all (2010) to assess the level of industry commoditization.

- Product homogeneity: high. Clients (and prospects) don’t perceive the products to be differentiating. They are perceived to identical in quality and performance to those of the competitors. LeasePlan can make a difference by adding flexible services to the basic offering.

- Service homogeneity: high. Clients (and prospects) don’t perceive the service offering as differentiating. Basic service offering is standardized. LeasePlan can provide services tailored to the needs of a specific client. Notable is that all respondents believe a service can be (or become) a commodity.

- Price sensitivity: high. Price is the most important decision criteria for a majority of the clients. Clients are more and more looking to cut down costs and make decisions based on price.

- Switching cost: low. A client can either end the contract or stop ordering new vehicles. From an administrative point of view it can be time-consuming to switch.

- Industry stability: high. The competitive landscape is stable for years. There’s a consolidation happening and more big players will arise in the future. The demand from large players remains consistent, whereas the demand from SME firms is growing.

Summary: the level of industry commoditization is high. Both products and services are highly standardized. Although LeasePlan does have the possibility to distinguish itself with its products and service offering, this does not yet happen. Clients can easily switch to a

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29 | P a g e Figure 6. Rangan & Bowman (1992). Where is LP positioned? (According to the respondents)

Summary: LeasePlan is positioned in the upper right quadrant of the Rangan & Bowman figure (1992). Although there’s no unanimous agreement on the position the deviations are minor.

Price

Price is high

The majority of the respondents claim that the prices are high and it’s difficult for LP to compete on price. Prices are sometimes too high. This is due to the dependence on the whole sale funding and LP does not want to become a price fighter (strategic decision). As the price is high, LP should clearly demonstrate added value to win or retain clients.

Price level differs per country (maturity level)

Smaller and less mature countries still play with the margins and have possibilities to charge a price above market standards. However, in the larger and more mature countries the prices are more transparent, margins are lower and LP is not considered to be expensive.

Price is most important criteria for clients For a majority of the clients, price is the most important decision criteria. Clients are more and more looking to cut down costs and most often their procurement department is involved. LP still loses deals due to a high price. Leasing is a complicated financial service not easy to understand. Many customers don’t have the ability or knowledge to fully assess the product and service offering. So in the perception of the customer leasing is a commodity. As a result, the focus is on price when they make a purchase decision. Low High Low Service High Price

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30 | P a g e Summary: For the clients, price is the most important decision criteria. Clients are always looking for ways to cut down costs and involve procurement during tenders. In most markets, LeasePlan is able to charge high prices with profitable margins. In highly mature markets, prices are more under pressure and margins for LP are lower. It’s a strategic choice from LeasePlan not to lower its prices as the firm does not want to become a price fighter. Strategy

Operational excellence Customer intimacy Product leader A minority wants LP to only

focus on operational excellence in all segments. In this case it will be a mandatory focus for all entities. HQ should get more mandate and there must be one universal IT systems for the whole organisation.

None of the respondents believes customer intimacy should be the focus for all segment.

This value discipline is mentioned once chosen. The culture in the different business units is entrepreneurial, so not much change is needed.

Strategy differs per client segment.

Majority of the respondents wants LeasePlan to create different business units. They all underline that a strategy focus is the way forward. The firm should create two business units with its own P&L: one SME and one medium and large fleet business unit. The SME business unit includes the SME clients (< 25 vehicles), online leasing and standardized product and service offering for all clients (no flexibility possible). The other business unit focuses on clients with > 25 vehicles with needs to customize and flexibility. The client should easily recognize the different proposition of the two business unit.

Operational excellence Customer intimacy

For the SME business unit, this value

discipline should be the focus. Clients in this segment are focused on costs. Clients receive low-cost but reliable products and services at competitive prices and delivered according to the brand promise (it’s easier to leaseplan).

Customer intimacy should be the focus for the medium and large fleet business unit. Clients in this segment are looking for flexibility and prefer customized products and services. The offering will be tailored to match the needs of these clients. LeasePlan should first focus on operational excellence. When LP excels in this value discipline it can move on and focus on customer intimacy.

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31 | P a g e Summary: Majority of the respondents wants to create two business units for two different clients segments. Each segment has a different value discipline to focus on. Operational excellence should be the focus for the SME business unit and the medium and large client business unit focuses on customer intimacy. Condition for customer intimacy is that the firm first excels in operational excellence.

Important to note is that all respondent said that LeasePlan is a decentralized organisation. The general consensus is that this heavily impacts the way LeasePlan operates. As there’s so much freedom for each country, it will be difficult – and against the company culture - to instruct the countries how to execute a specific strategy.

V. Conclusions & recommendations

In the previous chapters an extensive literature review about commoditization and Treacy and Wiersema’s value disciplines have been described. Nine interviews have been conducted to discuss commoditization for LeasePlan and which strategy they should focus on. In this chapter conclusions will be drawn based on both the literature and interviews and the research question which strategy companies operating in a commodity market, not willing to lower their prices, should execute to maintain profitable will be answered.

A. Conclusions

To be able to answer the research question, the 3 hypotheses will first be discussed. Hypothesis 1: LeasePlan operates in a highly commoditized industry.

This hypothesis is correct. LeasePlan operates in a highly commoditized industry. The firm has difficulty distinguishing itself from its competitors with its basic product and service offering, but can make a difference by adding on different element (extra services) to its current offering. It’s therefore that LeasePlan operates in a perceived commodity industry (Schwirn, 2002). As leasing is a complicated product, most customers have limited

knowledge and don’t have the ability to fully assess the offering. As a result, the consumer is mainly focused on price when they make a purchase decision and the industry becomes commoditized. It is widely accepted that LeasePlan operates in a commodity market and there’s no general sense of urgency to escape this commodity trap. The board is not looking for (innovative) ways to get out of it. LeasePlan’s future outlook remains positive, so there’s no sense of urgency needed. One way to distinguish from its competitors is by adding consultancy to the current standardized product and service offering.

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32 | P a g e Although LeasePlan operates in a commodity industry and customers are always looking for ways to cut down costs the firm is still able to charge high prices with profitable margins. In the highly mature markets prices are more under pressure and margins for LeasePlan are lower. The firm, however, deliberately does not lower its prices as it does not want to become a price fighter.

Hypothesis 2: LeasePlan will be positioned in the upper right quadrant of the Rangan and Bowman (1992) overview.

This is correct. LeasePlan offers a product together with intensive value-added services for which the customer pays a high price. This position shows that customers don’t perceive the firm’s product as being superior to competitive offerings or substitutes. LeasePlan is not able to extract a higher value than the services it renders. As Reinmann at all (2010) state a

commoditization assessment should be a vital part of a firm's lifecycle. Based on the outcome, the next step will be to decide which value discipline is best suited to the situation. By

acknowledging the stage of commoditization LeasePlan currently operates in, the next step is to decide which strategy is most applicable.

Hypothesis 3: LeasePlan should focus on the value discipline Operational Excellence when it wants to grow.

This hypothesis is partly correct. The firm should create two business units. The first is a SME business unit which includes SME clients (< 25 vehicles), online leasing and

standardized product and service offering for all clients (no flexibility possible). The other business unit is for medium and large fleet clients and focuses on clients with > 25 vehicles with needs to customize and flexibility. For the SME business unit, operational excellence should be the focus. Clients in this segment have a clear cost focus and will therefore receive low-cost but reliable product and services at competitive prices delivered according to the brand promise (it’s easier to leaseplan). Customer intimacy should be the focus for the medium and large fleet client business unit. Clients in this segment are looking for flexibility and prefer customized products and services. The offering will be tailored to match the needs of these clients. Before LeasePlan will be able to focus on customer intimacy, the firm should first focus on operational excellence. When LeasePlan excels in this value discipline it can move on to customer intimacy.

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33 | P a g e Research question: Which strategy should companies operating in a commodity market, not willing to lower their prices, execute to maintain profitable?

Based on the literature and nine interviews the following final conclusions can be drawn. When companies want to look at their strategy based on the level of commoditization, they should first conduct research to find out if they operate in a commodity industry. If this is the case, the next step would be to assess in which stage of commoditization the firm operates. Based on the stage of commoditization, the firm should focus on one value discipline as described by Treacy and Wiersema (1993), making sure the full organisation is organised in such a way that it will be possible to excel.

When a firm acknowledges it operates in a commodity market, it is advisable to analyse the client base and when needed segment different target groups. Only when the client needs are segmented accordingly the right strategy to focus on can be chosen. When needed, separate business units for each segment can be created. It is important clients can recognize the proposition of each different business unit (for example low cost versus convenience). This research shows that companies can have different value disciplines for each business unit based on the needs of the clients. When customers have a focus on costs and no need for flexibility the value discipline operational excellence is recommendable to focus on. Clients with a need for flexibility and customized products and services should be served based on the customer intimacy value discipline. And when clients are looking for leading-edge and

innovative products and services the value discipline product leader should be focused on. Selecting which strategy the firm should focus on must be done carefully as it impacts the full organisation. The firm should realize that only with full focus it will be possible to gain such a lead that competitors find it hard to catch up (Treacy and Wiersema, 1993). There should be a commitment to align the entire operating model (the company’s culture, business processes, management systems, and computer platforms), to serve one value discipline. Less focused companies must do far more than simply tweak existing processes to gain this advantage (Treacy and Wiersema, 1993).

B. Recommendations

Commoditization is a widely covered topic in the academic literature, but the focus is mostly on product and industry commoditization. This paper focused on commoditization of services as not much research to this phenomenon is conducted. A firm is not immune to

Be the industry leader in a commodity industry by focussing on strategy.

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