Most businesses are caught up in the seemingly relentless commodity trap. Goods and services which once commanded a premium are now subjected to relentless price competition, and the squeeze on profit margins seems irreversible. However, if you can identify the type of commoditization which is occurring, there are actions which you can take to resist it, according to Richard D’Aveni in his book Beating the Commodity Trap.
There are three types of commodity traps: deterioration, in which the market heads towards low-cost/low-benefit offerings; proliferation, in which the market is filled with large numbers of different combinations of price and features; and escalation, in which the marketplace keeps offering greater benefits for the same or lower prices. The author explains how you can identify each of these traps, and the different actions that you can take to resist each one.
The methods advocated by the author depend on creating accurate price-benefit analyses using hedonic price regression. I am not sure whether I am completely convinced about the scientific nature of this process; I fear that the plotting of price-benefit charts may involve too much guesswork and subjectivity. Nonetheless this short book provides an excellent source of different strategies for combating commoditization.