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TMCVocabulary

How to Avoid Commoditization Through Differentiation

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By Mike Press

Mike PressSituation
For almost 15 years the Company enjoyed the biggest share of the market for specialized power amplifier (PA) semiconductor chips used in cell phones.  The Company maintained the majority share with a large portfolio of PA products that were sold at a price premium.  Unlike the broader general market for common PA chips, the cell phone segment is comprised of about 5 customers who account for more than 85% worldwide volume.  Many mid- and high-level executives at the Company came from the general purpose PA business earlier in their careers, and it affected their thinking about price.

 


Total Handset Shipments Actual & Forecast
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High growth in cell phone handset sales attracted many new players into the PA market.  It became much harder to differentiate the chips themselves and at one point the suppliers together built too much manufacturing capacity.  The Company was dismayed to hear the industry increasingly refer to cell phone PA chips as commodity products.  It was even more worrying to hear some of our own sales people use the same term.  While sales could claim with justification that our Generic Products was undifferentiated, our customers continued to pay a premium.  Nobody really knew why.