138 • 100 GREAT BUSINESS IDEAS
When a product becomes easily interchangeable with other
products of the same type, it is said to become a “commodity.”
The process of a previously differentiated and specialized product
becoming interchangeable is known as commoditization. While
it is believed to increase overall economic effi ciency, it can be
diffi cult for individual companies to handle. Economic value and
profi ts come from scarcity, whereas commoditization can curtail
the potential for profi t.
The idea
A famous example of commoditization is the microchip industry.
While microchips started out as a specialized innovation that
commanded a high price, they gradually became mass produced
and interchangeable. This commoditization altered the nature of
the microchip industry, increasing competition and decreasing
profi t margins.
Harrah’s Entertainment, a gaming corporation that operates hotels
and casinos in America, recognized that traditional attempts
made by casinos at avoiding commoditization—such as creating
increasingly garish and noticeable designs—were becoming stale
and ineffectual. It decided that the most effective way to avoid
becoming an interchangeable commodity would be to establish
an increased level of customer communication and gratifi cation.
A loyalty program was introduced where valuable customers were
rewarded with signifi cant gold-, platinum-, and diamond-level
privileges. Harrah’s CEO Gary Loveman commented, “When