Mika Riihimäki How industrial equipment manufacturers survive commoditization A dynamic capabilities approach Vaasa 2025 School of Management Master’s thesis Strategic Business Development 2 UNIVERSITY OF VAASA School of Management Author: Mika Riihimäki Title of the thesis: How industrial equipment manufacturers survive commoditization: A dynamic capabilities approach Degree: Master of Science in Economics and Business Administration Discipline: Strategic Business Development Supervisor: Sniazhana Diduc Year: 2025 Pages: 117 ABSTRACT: This thesis examines the commoditization challenge faced by industrial equipment manufactur- ers, where product and service offerings lose distinctiveness leading to price-based competition and diminishing margins. This issue is particularly critical for mature and capital-intensive sectors like industrial equipment manufacturing. While prior research has explored market-level drivers and generic strategies, a gap exists in understanding the specific internal organizational capabil- ities required for firms to survive these pressures. This study aims to fill this knowledge gap by answering the following research question: How can industrial equipment manufacturers lever- age dynamic capabilities to survive commoditization and sustain competitive advantage? A qualitative, inductive research strategy employing a multiple-case study design was selected to gather contextual insights. Empirical evidence were collected through semi-structured inter- views with industry experts across three relevant incumbents actively engaged in combating commoditization. The data were systematically analyzed using qualitative methods, involving coding, theme development linked to the microfoundations of dynamic capabilities, and a cross- case analysis focused on how these firms utilize dynamic capabilities through the framework of sensing commoditization drivers, seizing opportunities to respond, and reconfiguring to escape from commodity traps. Key findings reveal that effective sensing relies heavily on customer intimacy along with formal environmental scanning, yet significant challenges exist in internally synthesizing and utilizing this information. Companies pursued differentiation through innovation, technology leadership, and servitization, but frequently face a disconnect between strategic intent and successful com- mercial execution. Modular product architectures were identified as critical enablers for agility and customization. However, they face substantial barriers caused by organizational inertia, path dependencies, and portfolio complexity. The findings highlight the crucial interplay be- tween dynamic capabilities and identifies a “commoditization dilemma,” where rational short- term actions, may paradoxically accelerate long-term commoditization. This thesis provides empirical evidence on the practical application of dynamic capabilities in countering commoditization within the industrial equipment sector. Successfully surviving com- moditization requires developing individual capabilities and managing their integration by ac- tively overcoming internal rigidities. The research contributes to dynamic capability theory through contextualized insights into microfoundations and interplay challenges, and to com- moditization literature by highlighting the paradoxical effects of certain strategic responses, em- phasizing the need for a long-term perspective in capability deployment. KEYWORDS: Commoditization, dynamic capabilities, industrial equipment manufacturers, firm-level adaptation 3 VAASAN YLIOPISTO Johtamisen akateeminen yksikkö Tekijä: Mika Riihimäki Tutkielman nimi: Miten teolliset laitevalmistajat selviävät hyödykkeistymisestä: Nä- kökulmana dynaamiset kyvykkyydet Tutkinto: Kauppatieteiden maisteri Oppiaine: Strategic Business Development Työn ohjaaja: Sniazhana Diduc Valmistumisvuosi: 2025 Sivumäärä: 117 TIIVISTELMÄ: Tämä pro gradu -tutkielma tarkastelee teollisten laitevalmistajien kohtaamaa hyödykkeistymis- haastetta, jossa tuote- ja palvelutarjoamat menettävät erottuvuuttaan, johtaen hintakilpailuun ja kannattavuuden heikkenemiseen. Tämä on merkittävä haaste erityisesti kypsillä ja pääomaval- taisilla toimialoilla. Aikaisempi tutkimus on käsitellyt toimiympäristöstä aiheutuvia hyödykkeis- tymisajureita, sekä yleisiä strategioita vastata niiden aiheuttamiin haasteisiin. Kirjallisuuskatsaus osoitti, että yritystason kyvykkyysperustainen näkökulma muodostaa merkittävän tutki- musaukon. Tämän tutkimuksen tavoitteena on täyttää tämä tutkimusaukko, vastaamalla seuraa- vaan tutkimuskysymykseen: Miten teolliset laitevalmistajat voivat hyödyntää dynaamisia kyvyk- kyyksiä selviytyäkseen hyödykkeistymisestä ja säilyttääkseen kilpailuetunsa? Tutkimus oli muodoltaan laadullinen vertaileva monitapaustutkimus, joka hyödynsi induktiivista päättelyä kontekstisidonnaisten löydöksien tunnistamiseksi. Empiirinen aineisto kerättiin puo- listrukturoiduilla teemahaastatteluilla, joissa haastateltiin alan asiantuntijoita kolmesta merkit- tävästä toimialaa johtavasta yrityksestä. Haastatteluaineistoa analysoitiin systemaattisesti laa- dullisilla tutkimusmenetelmillä, kuten aineiston koodauksella, dynaamisten kyvykkyyksien mik- roelementtitason teemoittelulla sekä vertailemalla, miten tapausyritykset hyödyntävät dynaami- sia kyvykkyyksiä tunnistaessaan hyödykkeistymisajureita, tarttuakseen torjumismahdollisuuksiin ja uudelleen määrittääkseen resurssejaan paetakseen hyödykkeistymisloukuista. Tutkimuksen päälöydökset osoittivat, että tehokas tunnistamiskyvykkyys perustuu vahvaan asia- kasläheisyyteen sekä suunnitelmalliseen toimiympäristön seurantaan. Tunnistettujen tietojen käsittely ja hyödyntäminen yrityksen sisäisesti osoittautui merkittäväksi haasteeksi. Tapausyri- tykset pyrkivät pääasiassa erilaistumaan innovaatioiden, teknologiajohtajuuden ja palvelullista- misen kautta, mutta kohtasivat usein kuilun strategisten tavoitteiden ja onnistuneen kaupallista- misen välillä. Modulaariset tuoterakenteet tunnistettiin kriittiseksi ketteryyden ja räätälöinnin mahdollistajaksi. Merkittävinä haasteina tunnistettiin yritysten sisäinen kitka, polkuriippuvuudet, ja tarjoamien monimutkaisuus. Tulokset korostavat dynaamisten kyvykkyyksien välisen vuoro- vaikutuksen merkittävyyttä ja tunnistavat ”hyödykkeistymis dilemman”, jossa rationaaliset ly- hyen aikavälin päätökset paradoksaalisesti kiihdyttävät pitkän aikavälin hyödykkeistymistä. Tämä tutkielma tarjoaa empiiristä näyttöä dynaamisten kyvykkyyksien käytännön soveltamisesta hyödykkeistymisen torjunnassa. Hyödykkeistymisestä selviytyminen edellyttää yksittäisten ky- vykkyyksien kehittämistä ja niiden integraation hallintaa. Tutkimus edistää dynaamisten kyvyk- kyyksien teoriaa, tarjoamalla kontekstisidonnaisia löydöksiä niiden mikroelementeistä ja vuoro- vaikutuksen haasteista. Tutkimuksessa edistettiin lisäksi hyödykkeistymiskirjallisuutta tunnista- malla tiettyjen strategisten ratkaisujen paradoksaalisia vaikutuksia, sekä tarvetta pitkän aikavälin näkemykselle kyvykkyyksien hyödyntämisessä. AVAINSANAT: Hyödykkeistyminen, dynaamiset kyvykkyydet, teolliset laitevalmistajat, yritys- ten uusiutuminen 4 Contents 1 Introduction 7 1.1 Motivation for the study 8 1.2 Research gap 9 1.3 Research problem and theoretical contribution 11 1.4 Thesis structure 12 2 Literature review 13 2.1 Commoditization 13 2.1.1 Conceptualizing commodities 16 2.1.2 The commoditization phenomenon 18 2.1.3 Commoditization of products and industries 19 2.1.4 The commodity trap 20 2.1.5 Processes and mechanisms of commoditization 21 2.1.6 Antecedents of commoditization 24 2.1.7 Responses to commoditization 31 2.2 Dynamic capabilities 37 2.2.1 Conceptualizing dynamic capabilities. 38 2.2.2 Processes and mechanisms of dynamic capabilities 41 2.2.3 Microfoundations of dynamic capabilities 43 2.3 Applying the dynamic capabilities lens to commoditization 44 2.3.1 Sensing the drivers of commoditization 45 2.3.2 Seizing the opportunities to respond 46 2.3.3 Reconfiguring to escape the commodity trap 48 2.4 Theoretical framework: Surviving commoditization 49 3 Methodology 50 3.1 Research strategy and method 50 3.2 Case selection process 52 3.3 Data collection 54 3.4 Data analysis 56 5 4 Findings 64 4.1 Within-case description and analysis 64 4.1.1 Company A 66 4.1.2 Company B 70 4.1.3 Company C 72 4.2 Cross case analysis 76 4.2.1 Patterns in sensing 77 4.2.2 Patterns in seizing 79 4.2.3 Patterns in reconfiguring 82 4.3 Synthesis and interpretation of findings 85 4.3.1 Commoditization dilemma 86 4.3.2 Path dependency 88 4.3.3 Interplay of dynamic capabilities in practice 89 4.3.4 Empirically grounded framework 90 5 Discussion 92 5.1 Theoretical implications 92 5.2 Managerial implications 94 5.3 Suggestions for future research 96 5.4 Limitations 97 References 99 Appendices 116 Appendix 1. Interview guide sent to strategy interviewees 116 Appendix 2. Interview guide sent to product management interviewees 117 6 Figures Figure 1. Driver and response categories adapted from Enke et al. (2022). .................. 15 Figure 2. Types of commodity offerings (Enke et., 2022). .............................................. 17 Figure 3. Commodity traps adapted from D’Aveni (2014). ............................................. 20 Figure 4. Commoditization loop. .................................................................................... 22 Figure 5. Theoretical framework. ................................................................................... 49 Figure 6. Case selection process. .................................................................................... 53 Figure 7. Summary of key findings (Company A). ........................................................... 69 Figure 8. Summary of key findings (Company B). ........................................................... 72 Figure 9. Summary of key findings (Company C). ........................................................... 76 Figure 10. Revised framework. ....................................................................................... 91 Tables Table 1. Central prior studies on commoditization. 14 Table 2. Consolidated list of commoditization drivers. 25 Table 3. Consolidated responses to commoditization. 32 Table 4. Central prior studies on dynamic capabilities. 38 Table 5. Summary of interviews. 56 Table 6. Comprehensive Gioia data structure (Company A). 59 Table 7. Comprehensive Gioia data structure (Company B). 61 Table 8. Comprehensive Gioia data structure (Company C). 63 Table 9. Case comparison table. 66 7 1 Introduction Imagine a leading manufacturing company that used to be known for its innovative products and strong reputation now facing difficulty in staying competitive as its offer- ings start to blend in with those of their low-cost competitors. This common scenario in today’s global competition illustrates the challenge of commoditization, a phenomenon where products and services lose their distinctiveness resulting in price competition and diminishing profit margins (D'Aveni 2014; Enke et al., 2022; Wagner et al., 2023). How traditional manufacturing companies can survive this challenge and stay ahead in com- petitive industries such as industrial equipment? This thesis examines this question through the lens of dynamic capabilities to understand how firms can develop and lev- erage their competencies when adjusting to evolving market demands. (Teece et al., 1997; Eisenhardt & Martin 2000; and Helfat, 2007). This thesis utilizes a multiple case study approach to investigate how three industrial equipment manufacturers operating in the Nordic region develop capabilities and processes to combat commoditization and achieve successful outcomes. The manufacturing of industrial equipment is vital for advanced economies and holds particular importance for the Nordic region. It faces growing challenges due to commod- itization as technological advancements increase and global competition grows fiercer. Manufacturers are finding it harder to distinguish their products and maintain premium pricing (D'Aveni 2014; Enke et al., 2022; Wagner et al., 2023). Therefore, it is essential to research how companies in this industry can effectively adjust their strategies to en- sure success for themselves and for the overall economic health and competitiveness of countries such as Finland. The findings of this thesis provide insights into both academic research and practical guidance for managers aiming to thrive when facing this funda- mental industry challenge. 8 1.1 Motivation for the study Commoditization makes products and services increasingly like competitor’s offerings, forcing firms to operate under price competition and leading to narrower profit margins (D’Aveni, 2014; Enke et al., 2022; Wagner et al., 2023). A good example is the decline of General Motors during the pre-bailout era, when the company failed to distinguish itself from low-cost competitors and lost its previously market leading position in the automo- tive industry (Helper & Henderson, 2014). This challenge is not only affecting low tech sectors, as even producers of complex and technologically advanced products, such as industrial equipment, are exposed to this risk (Anderson & Narus, 2004; Mudambi, 2002). The manufacturing sector of Finland has a higher concentration of multinational manu- facturers than other Nordic countries offering a relevant context for studying how firms navigate commoditization pressures (Huikkola, 2017). This sector, producing equipment for industries like construction, mining, logistics and manufacturing is characterized by high capital intensity, long product life cycles and strong B2B relationships (Korkeamäki et al., 2021; Möller & Rajala, 2007; Uuskoski et al., 2023). The sector faces increasing commoditization pressures due to e.g., rapid technological advancements enabling product replication (Reimann et al., 2010; Wagner et al., 2023), globalization and com- petition from emerging economies with lower labor costs (Dimova, 2019), increased market transparency through e-commerce (Wagner et al., 2023) and the increasing need for standardized solutions (Closs et al., 2008). As the industrial equipment manufacturing sector continues to become increasingly commoditized, firms must develop strategies to sustain profitability. Porter (1980) iden- tified the three generic strategies of cost leadership, differentiation and focus, which firms can use to navigate different competitive environments. However, as eroded profit margins, which are often a symptom of commoditization, limit a firm's ability to invest in R&D, which is often needed to succeed with differentiation, firms are left with less 9 than favourable options to choose from. This can result in a loss of market share, declin- ing competitiveness, and eventually threaten the viability of firms and the economic contributions they make (D’Aveni, 2014). Thus, without identifying and understanding the strategies that can be used to fight com- moditization, it is impossible to guarantee a firm's profitability, growth or even in some cases its existence. For nations like Finland, it is important to sustain a competitive in- dustrial sector and to promote innovation and broader economic prosperity. This calls for moving away from the purely defensive and reactive approaches of cost-cutting and more importantly developing organizational capabilities for sensing, seizing, and trans- forming resources to generate and maintain competitive advantage in a fast-changing world (Matthyssens & Vandenbempt, 2008; Teece, 2007). While the existing literature focuses on different aspects of commoditization and poten- tial responses, there is still a significant gap in the literature regarding the specific capa- bilities and processes that firms need to possess to prevent themselves from being com- moditized and to be initiative-taking about maintaining their competitive position. This thesis aims to contribute to the gap in the literature by exploring how dynamic capabili- ties can be used by industrial equipment manufacturers to deal with the challenges of commoditization. This is both a core contribution to the broader academic literature on dynamic capabilities, as it provides empirical evidence of their role in a less explored context and a niche contribution, which provides specific insights into the strategies and capabilities of Nordic industrial equipment manufacturers, a sector which is experienc- ing significant commoditization. 1.2 Research gap Numerous studies have been conducted to analyze the commoditization process and organizational strategies for dealing with it. However, this phenomenon is important, and yet, very few studies have been conducted to identify which specific organizational 10 capabilities are most effective for de-commoditization. The existing theoretical contribu- tions on commoditization can be broadly divided into two streams. The first, in market- ing, focuses on explaining the market level causes of commoditization, such as increased price sensitivity, product homogeneity, and ease of switching (Enke et al., 2022; Wagner et al., 2023; Reimann et al., 2010). This research stream gives useful insights into how markets change with commoditization but offers limited advice on how firms can proac- tively respond. The second stream answers to this need with contributions from strategic management scholars which have been normative in nature offering prescriptive advice for managers on avoiding commoditization with e.g., product feature differentiation, ser- vitization or cost leadership (Matthyssens & Vandenbempt, 2008; Homburg et al., 2009). The two streams have contributed to important findings, but they do not address the internal firm-specific capabilities that are necessary for successfully surviving commodi- tization. Reimann et al. (2010) state that previous studies have not examined the con- nection between a firm’s resources and capabilities and the effectiveness of different strategic responses. Moreover, while recognizing the need for capabilities to sense mar- ket information (Wagner et al., 2023), very few papers develop a theoretical lens to ex- plain the development, deployment, and integration of these capabilities over time. Fur- thermore, most of the existing empirical work relies on unidimensional measures and does not provide a multi-dimensional view (Wagner et al., 2023). The dynamic capabilities (DC) framework will serve as the solution to address this knowledge gap. The framework based on sensing, seizing, and transforming organiza- tional resources and capabilities will be used as a method to understand how firms can actively shape and align with growing commoditization (Teece et al., 1997; Eisenhardt & Martin, 2000; Helfat, 2007). This research extends past sensing focused research (Wag- ner et al., 2023) to analyze capability interactions that influence de-commoditization strategy effectiveness. Additionally, this thesis investigates the microfoundations of these capabilities (Teece, 2007) to provide organizations with practical advice for build- ing capabilities to fight commoditization. 11 1.3 Research problem and theoretical contribution Previous research has identified various drivers and responses but fails to explain which organizational capabilities allow companies to proactively resist commoditization while maintaining competitive advantage. This research fills this knowledge gap by ana- lyzing it through the lens of dynamic capabilities and its microfoundations (Teece et al., 1997; Teece, 2007). There is currently insufficient knowledge about how Nordic indus- trial equipment manufacturers can leverage dynamic capabilities and their processes to fight commoditization effectively. Therefore, this thesis addresses this with the follow- ing research question: RQ: How can industrial equipment manufacturers leverage dynamic capabilities to sur- vive commoditization and sustain competitive advantage? The research is grounded on the dynamic capabilities framework which states that sus- tained competitive advantage in dynamic environments depends on a firm’s ability to integrate, build, and reconfigure competences (Teece et al., 1997; Eisenhardt & Martin, 2000; Helfat, 2007; Teece, 2007). The study uses the sensing, seizing, and transforming framework (Teece, 2007) to analyze proactive market adaptation for commoditized mar- kets. The research contributes to two important gaps in current knowledge identified by Enke et al. (2022) and Luther (2022) by providing empirical evidence about the antecedents of commoditization and evaluations of commoditization responses. Additionally, it in- vestigates the interplay between dynamic capabilities within the industrial equipment manufacturing context to provide insights for firms that want to maintain competitive advantage against competitive pressures. This study produces both theoretical and practical contributions from its findings by add- ing to the strategic management and dynamic capabilities literature through empirical 12 evidence demonstrating how dynamic capabilities and their microfoundations can be used to fight commoditization. Additionally, it investigates how sensing, seizing, and transforming capabilities interact through an in-depth analysis of their practical imple- mentation. The research provides industrial equipment manufacturers with practical in- sights by identifying essential capabilities and processes to combat commoditization. This guidance will assist organizations in developing resilience while improving compet- itiveness and sustaining profitability. 1.4 Thesis structure This thesis consists of five chapters. The first chapter introduces the research subject by explaining the motivation behind the study, research gap, research problem and ques- tion and finally presents the theoretical framework together with expected contribu- tions. The second chapter contains an extensive review of existing literature about com- moditization and dynamic capabilities. Specifically focusing on the antecedents, re- sponses, processes, and mechanisms of commoditization along with the foundations and operational mechanisms of dynamic capabilities. The chapter concludes with a syn- thesis between these two research streams that establishes a theoretical base for the following empirical research. The latter part of this thesis consists of the research methodology section as the third chapter, case study findings as the fourth and finally the discussion section as the final chapter. In the methodology chapter the qualitative research approach and the multiple- case study design are justified along with how the cases were chosen, which data collec- tion methods and analysis procedures were used. In the findings section individual case analyses are presented, leading to a comparative analysis that reveals the identified pat- terns and themes. Finally in the discussion chapter, theoretical and managerial implica- tions of the research findings are discussed and the avenues for future research and the limitations of this study are disclosed. 13 2 Literature review The literature review section of this thesis provides a comprehensive synthesis of two relevant theoretical streams essential for understanding how industrial equipment man- ufacturers adapt to survive the threat of commoditization. The first segment explores the phenomenon of commoditization by investigating its conceptualization, underlying processes and mechanisms, key antecedents, and strategic responses. Then in the sec- ond chapter, the dynamic capabilities (DC) framework is covered by discussing its con- ceptual development, key processes, and mechanisms (i.e., sensing, seizing, and recon- figuring), and their underlying microfoundations. Lastly, the two streams are synthesized by applying the dynamic capabilities lens to the context of commoditization. This creates a theoretical framework that serves as the foundation for empirical exploration in the findings section. This framework is visually presented in the end of the literature review chapter as an “empty” framework that is then filled with empirical evidence at the end of the findings section. 2.1 Commoditization The following section examines the multifaceted nature of commoditization by first con- ceptualizing the phenomenon, processes and mechanisms related to it, and then ana- lyzing the theoretical foundations of its antecedents and responses. The review synthe- sizes strategic management and marketing literature to create a complete picture of the commoditization process and its effects on firm competitiveness. The central prior stud- ies drawn in this thesis are listed in table 1. Enke et al. (2022) provides relevant consolidation of both the drivers and responses to commoditization, which is utilized in this thesis as a platform to lay the dynamic capabil- ities lens and review empirical evidence against. Reimann et al. (2010) is the second most cited paper from these selected contributions with 98 citations found through Scopus and cite by both Enke et al. (2022) and Wagner et al. (2023). According to Wagner et al. (2023) the scale proposed by Reimann et al. (2010) is the only other scale along with 14 theirs that does not adopt a unidimensional view of commoditization. The proposed di- mensions of “industry stability, switching costs, price sensitivity, and product homoge- neity” (Reimann et al., 2010), were adapted following the product level commoditization scale developed by Wagner et al. (2023) and included in the analysis. Wagner et al. (2023) offers a valuable literature review that was based on a novel comprehensive bibliometric review of commoditization literature. Matthyssens and Vandenbempt (2008) is the most cited paper from these selected contributions with 316 citations found from Scopus as well as being cited be Enke et al. (2022) and Reimann et al. (2010). D’Aveni (2014) is the sequel to D’Aveni’s work on the so-called hypercompetition theory, which saw some pop- ularity in the late 90’s. However, this thesis does not adopt the hypercompetition per- spective but rather acknowledges the contribution in incorporating the product maturity viewpoint to commoditization research and coming up with the term “commodity trap.” Author(s) Study focus Data/methodology Main contribution Enke et al., 2022 Commodity marketing, com- modity types, commoditiza- tion and de-commoditization phenomenon, the drivers of and responses to counter commoditization. Categorizes commodity types, explains, and summa- rizes drivers of commoditiza- tion, and de-commoditiza- tion approaches qualita- tively. Commodity offering differen- tiation matrix (objective and subjective), overview of com- moditization drivers, and a consolidation of response approaches. Reimann et al., 2010 Industry-level commoditiza- tion and its impact to the de- velopment of marketing competition. Combines survey data from 141 companies in ten indus- tries and field interview find- ings to assess an industries commoditization level. A framework for measuring industry commoditization. Suggests that higher com- moditization levels force companies to adopt cus- tomer intimacy as the main performance driver. Wagner et al., 2023 Measuring product-level commoditization from the customer perspective. A multi-study approach of four studies to establish the reliability and validity of the product commoditization scale developed. A novel 13-item self-assess- ment scale to measure prod- uct commoditization follow- ing the proposed dimen- sions. Matthyssens & Vanden- bempt, 2008 Establish differentiation through service-based solu- tions in commoditized mar- kets. A longitudinal qualitative study in the electro technical industry with interviews con- ducted throughout multiple years. How companies can evolve from basic products into so- lutions as well as the obsta- cles they face in this transi- tion. D’Aveni, 2014 How markets commoditize over time through hyper- competition and how to es- cape from commodity traps. Verifying and quantifying commoditization patterns through authors consulting work and research in differ- ent thirty industries. Three commodity traps: de- terioration, proliferation, and escalation. Table 1. Central prior studies on commoditization. 15 The review follows a structure that includes four sub chapters. First defining commodi- ties through their characteristics while exploring various levels of commodity offerings and explaining the difference between product-level and industry-level commoditization. (Enke et al., 2022; Reimann et al., 2010; Wagner et al., 2023). Then how commoditization occurs as a process and by showing how businesses shift from differentiating to compet- ing on price and how the de-commoditization loop can occur in cyclical patterns (Green- stein, 2004; Matthyssens & Vandenbempt, 2008). Figure 1. Driver and response categories adapted from Enke et al. (2022). After that, the factors leading to commoditization are reviewed through a consolidation of drivers into four main categories as presented by Enke et al. (2022), which include company, offering, buyer, and market related factors that accelerate commoditization. The last section investigates managerial responses to commoditization by drawing on research on commoditization that has its roots in the strategic management literature e.g., (Barney, 2002; Mintzberg, 1988; Porter, 1980, 1985). This review of responses adopted a consolidated list of categories including innovation and superior offerings, 16 customer bonding and relationship quality, and operational excellence and fair value so- lutions (Matthyssens & Vandenbempt, 2008). This categorization is presented in the pic- ture above. 2.1.1 Conceptualizing commodities The concept of commodities is central to understanding commoditization. A commodity represents a standardized product which can be interchangeably traded because it does not contain any distinguishing characteristics (Greenstein, 2004). Whereas, the market positioning of differentiated products depends on e.g., branding and innovation, com- modity markets compete through cost-efficiency and price leadership (Porter, 1980). According to Enke et al. (2022) commodities were originally perceived as specific agri- cultural products like corn, wheat and coffee aligning with other early attempts to estab- lish a classification system of goods based on product characteristics. However, the per- ception of competing offerings evolves over time in a way that products from different categories can begin to seem similar. The changing perception of commodities has re- sulted in a more complex definition of what constitutes a commodity (Enke et al., 2022). While the earlier definitions of commodities were centered around industrial and con- sumer goods, modern interpretations include digital products and services. Which demonstrates that perceived standardization and homogeneity can occur to both tangi- ble and intangible goods and services. This leads to competition moving from distinctive features to emphasizing cost efficiency and price competitiveness (Ferrell et al., 2022). Enke et al. (2022) proposes a categorization of commodity offerings looking at two di- mensions as illustrated in the picture below. First the objectively existing differentiation, through inherent and measurable attributes of a product or service and then subjectively perceived differentiation. This framework yields four types of commodity offerings. Born commodities which are inherently undifferentiated and perceived as homogeneous by buyers. Then new commodities which have some unique features that over time become 17 unrecognizable and then perceived as similar. Then the differentiated offerings either through pseudo-differentiation by creating an illusion of uniqueness through branding and marketing, even though the objective differences are minimal, while truly differen- tiated offerings combine both clear objective differences and distinct consumer percep- tions (Enke et al., 2022). Figure 2. Types of commodity offerings (Enke et., 2022). According to Enke et al. (2022), firms offering either born or new commodities must con- centrate on cost efficiency and economies of scale as their products or services are mostly viewed as interchangeable. Whereas the firms that have pseudo-differentiated or genuinely differentiated offerings can leverage perceived uniqueness to command higher prices and foster customer loyalty. It is crucial for firms to align their strategic 18 initiatives with the type of commodity offering they offer, to sustain competitive ad- vantages in markets where differentiation may quickly wear down. 2.1.2 The commoditization phenomenon The process of commoditization makes both subjective and objective perceptions of products and services more similar which creates intense price competition and reduces profit margins (D’Aveni, 2014). This phenomenon is more common in mature industries where established companies struggle to maintain differentiation due to technological diffusion and globalization along with changing buyer expectations (Shih, 2018). The ho- mogenization of offerings leads to a decrease in the significance of unique attributes which feeds into companies having to compete primarily on price (Anderson et al., 2009; Enke et al., 2022). Stronger commoditization intensifies the challenge of differentiation. The loss of per- ceived differentiation allows buyers to get similar goods and services from alternative sellers, which increases price sensitivity, decreases switching costs, and diminishes brand loyalty (Mudambi, 2002; Reimann et al., 2010; Stanko & Olleros, 2013). Firms often use de-commoditization strategies to counteract these effects through e.g., brand differen- tiation, enhanced customer experiences and value-added services to create imaginary distinctions that persuade buyers to see similar offerings as differentiated products (Enke et al., 2022). Reinforcing perceived uniqueness allows firms to regain competitive ad- vantage and helps shift buyers' perception away from price-based decisions (Weil, 1996). Although often perceived as inevitable, some scholars such as Rangan and Bowman (1992), argue that commoditization is not inevitable as it can be strategically managed through differentiation and resource reconfiguration. Similarly, Schrage (2007) disputes the notion that “eventually everything becomes a commodity", pointing to examples such as toasters and bottled water, which have been reinvented many times over. Fur- ther stating that firms embracing innovation and maintaining customer intimacy can sus- tain differentiation even in industries that have been commoditized (Schrage, 2007). 19 2.1.3 Commoditization of products and industries The process of commoditization has different characteristics when occurring at the in- dustry and product levels thus requiring separate analytical approaches to understand. Wagner et al. (2023) define product commoditization through four buyer driven dimen- sions which include brand importance, ease of switching, price sensitivity and product homogeneity. The interchangeability of products leads to reduced brand significance and lower switching barriers which makes price the essential purchasing criterion. The market competition intensifies price battles which results in decreased profitability (An- derson et al., 2009). At the industry level commoditization demonstrates certain structural market mecha- nisms. Reimann et al. (2010) created a four-dimensional scale to assess industry com- moditization which includes product homogeneity, price sensitivity, low switching costs and high industry stability. Characteristically commoditized industries are stable in na- ture which creates an environment where disruptive innovations are scarce and differ- entiation challenging for firms. This results in intensified market competition and simul- taneously reduced profit margins (Hambrick, 1983; Pelham, 1997; Rangan & Bowman, 1992). According to Luther (2022), industry commoditization is a result of high product- level commoditization. Consumers may view products as interchangeable even when they differ in design or branding if their performance and quality are similar. This is in line with the procedural view of commoditization where competitive pressures drive of- ferings towards homogeneity and, therefore, shift consumer decisions to price (Enke et al., 2022). Reimann et al. (2010) state that industry commoditization is a managerial and strategic challenge. Firms in highly commoditized industries have fewer opportunities for differ- entiation, customers with higher price sensitivity, and lower switching costs, which 20 makes it difficult to sustain competitive advantage. Their scale remains one of the few comprehensive empirical frameworks for assessing the impact of industry level com- moditization on firm performance. 2.1.4 The commodity trap D’Aveni (2014) expanded the understanding of commoditization with contribution that enhanced the knowledge on how the competitive environment of a company effects the development of commoditization, by identifying three distinct commodity traps that firms may encounter which are presented in the picture below. Figure 3. Commodity traps adapted from D’Aveni (2014). First the deterioration trap which occurs when a dominant low-cost competitor emerges, undercutting industry incumbents by offering reduced prices and fewer product benefits. This forces firms to reduce their costs and quality, which creates an industry-wide race to the bottom. Companies that are caught in this trap experience declining profit mar- gins as they struggle to compete with cost leaders (D’Aveni, 2014). 21 Then the proliferation trap that occurs when competitors launch multiple niche offerings which divide the market and reduce the customer base of established companies. This results in a decline of market demand instead of direct price competition as buyers switch to specialized alternatives (D’Aveni, 2014). Lastly the escalation trap occurs when companies continuously increase features while cutting prices, which produces self-destructive competition. Companies that continu- ously pursue better specifications at lower costs typically lose their pricing power which makes sustained profitability challenging (D’Aveni, 2014). 2.1.5 Processes and mechanisms of commoditization The process of commoditization develops progressively as firms shift from differentiated offerings to competing on prices (D’Aveni, 2014). Market forces together with techno- logical diffusion and competitive pressures determine the progression of the transition stages (Reimann et al., 2010; Wagner et al., 2023). Many scholars have identified the various stages of this progression and the influence of industry characteristics and mar- ket competition patterns on that progression. (Greenstein, 2004; Shih, 2018). The pro- gression along with its related steps is demonstrated in the below picture. Every new product that starts its existence by delivering a distinct value proposition to the market draws follower products as competitors start to replicate, leading to decreas- ing customer interest and triggering price competition. Companies struggling with rising price competition should adopt de-commoditization strategies to maintain their market differentiation and prevent price wars. The reduced profitability from price pressures creates a challenging situation as firms typically do not have sufficient funds to execute the required differentiation initiatives (Enke et al., 2022). 22 Figure 4. Commoditization loop. Companies achieve competitive advantages, for example from innovation, branding and unique value propositions which allow them to charge premium prices as customers per- ceive their offerings as superior (Slater & Narver, 1994). The process does not happen immediately as market forces, technological diffusion and competitive pressures can in- fluence how much competitive advantage a firm can achieve (Yu, 2011). Once an indus- try experiences successful innovation which attracts competition, it can potentially lead to product standardization and reduced differentiation which decreases performance differences between companies (Enke et al., 2022). According to Guiltinan and Gundlach (1996) firms eventually must move from differen- tiation to cost efficiency and price competition when an industry faces increasing market 23 transparency and competitive intensity. Once the offerings of firms start to seem abun- dantly similar, buyers will choose affordable options as the cost of switching between suppliers becomes lower (Wagner et al., 2023). During this transition price competition takes over as the dominant force for entire industries (Reimann et al., 2010). Along with transparency and cost efficiency, industries may face regulatory and competitive pres- sures that lead to further standardization of structures, offerings and processes that is known as institutional isomorphism (Luther, 2022). Aligning with the framework of Di- Maggio and Powell (1983) which shows how firms adopt standardized practices because of external pressures, uncertainty and professional norms as explained by Meyer and Rowan (1977). The process of commoditization follows a cyclical pattern as companies periodically re- cover their differentiation before returning to price competition (Matthyssens & Van- denbempt, 2008). The consumer electronics industry where firms develop proprietary innovations and ecosystem-based lock-in strategies to maintain differentiation demon- strates this pattern (Yu, 2011). Greenstein (2004) elaborates this by stating that even advanced technology markets will experience commoditization as differentiation loses its effectiveness. Innovations together with proprietary integrations and service-ori- ented differentiation enable firms to delay or reverse commoditization if they can rec- ognize these cyclical patterns. For example, software firms have many of their core func- tions commoditized, yet they achieve differentiation through user experience innova- tions, proprietary integrations, and subscription-based services (Greenstein, 2004). This together with Rangan and Bowman (1992), Weil (1996), and Schrage (2007) sug- gests that commoditization is a manageable strategic challenge instead of an inescapa- ble state. Companies that modify their resources and value propositions can prevent commoditization from occurring or reverse it by identifying the critical inflection points from the cyclical patterns to maintain competitive differentiation in markets that are be- coming more commoditized. The inflection points indicate when firms transition to full 24 price-based competition although some industries can move back and forth between commoditization and differentiation (Reimann et al., 2010). Reimann et al. (2010) states that when the inflection point is reached, differentiation becomes impossible, and price competition takes over. The conditions of product stand- ardization, price-consciousness of buyers and low barriers to switching between com- peting offerings cause this transition. The rising intensity of these conditions makes firms move away from differentiation and focus on cost leadership. Furthermore, institutional factors like regulations and norms can increase these pressures (Luther, 2022). Wagner et al. (2023) created a product commoditization scale to identify this inflection point where price sensitivity and switching costs decrease brand loyalty. Confirming that a systematic method can be used to observe this change. Further stating that traditional brand advantages become ineffective at this point as buyers no longer detect any differ- ences between products leading to a price-driven market. Organizations need to detect these critical inflection points to maintain competitive ad- vantage. The commoditization process creates price-based competition in some indus- tries, but companies can prevent it through resource reallocation, market position- ing and complementary service offerings (Matthyssens & Vandenbempt, 2008; Reimann et al., 2010). Organizations can build resilience through time by understanding these stages and identifying re-differentiation opportunities. 2.1.6 Antecedents of commoditization The research on the antecedents of commoditization has led scholars to identify multiple key drivers that accelerate its impact. Competitive intensity, external investors, globali- zation, rapid technological advancements, shorter time-to-market cycles, reduced mar- ket regulations, shorter product and industry life cycles, product maturity, and the in- creasing ease of information exchange via e-commerce platforms are among the most widely recognized factors (Wagner et al., 2023). 25 Enke et al. (2022) propose a classification that consolidates drivers of commoditization into four categories which include company, offering, buyer and market related factors. The framework offers a holistic way to understand the commoditization process. A listing of these factors is found in the table below, where the different drivers found from liter- ature are categorized according to the classification system. Additionally, secondary driv- ers resulting from the main drivers are highlighted in the cells with grey background. Company-related Offering-related Buyer-related Market-related Standardization Shorter product life cycles Increase in price-based eval- uation Competitive intensity Imitation Rapid technological advance- ments Increase in buyers’ experi- ence and familiarity Globalization Prioritizing of operational ef- ficiency Modularity of product de- signs Perceptions of interchangea- bility Deregulation Product homogeneity Simplified product architec- tures Heightened price sensitivity Financialization Erosion of first-mover ad- vantages Lower perceived perfor- mance risk Reduced perceived value of unique features Intensified price wars Competitors introducing sim- ilar offerings Negative spillover effects Shift in industry focus to price efficiency Increased product inter- changeability The erosion of brand loyalty Diminished pricing power Lower imitation barriers Industry-wide standardiza- tion Weakening of proprietary ad- vantages Self-destructive competition Evolving market expectations Table 2. Consolidated list of commoditization drivers. Company-related factors such as decisions on standardization and imitation have a cen- tral role in driving commoditization. As pursuing economies of scale through standardi- zation results in increasingly homogeneous products that diminishes opportunities to differentiate (Brownell & Merchant, 1990; Perera et al., 1999). Firms often aim to in- 26 crease their operational efficiency through modular product designs with interchangea- ble components which lowers costs, yet these decisions tend to result in even more standardized offerings and less unique value propositions (John et al., 1999; Reimann et al., 2010). Imitation further accelerates the commoditization process, especially in mature markets which experience more incremental innovations than disruptive changes (Hax, 2005; Lieberman & Montgomery, 1998). This is further stimulated by new entrants that repli- cate established business models to lower their entry barriers and to reduce risks, thus creating even more uniform products (Lieberman & Asaba, 2006). The decreasing differ- ences between competitors in mature markets lead buyers to focus on cost-effectiveness instead of brand loyalty (Homburg et al., 2009). As a result, mature product categories exhibit higher price sensitivity and reduced differentiation as markets become saturated and products standardized (Reimann et al., 2010; Wagner et al., 2023). Leading compa- nies to focus on operational efficiency and compromise on their ability to maintain sus- tained differentiation (D’Aveni, 2014; Weil, 1996). Standardization and imitation as cost-saving and scaling measures produce short-term benefits but lead to long-term loss of competitive differentiation (Brownell & Merchant, 1990; Perera et al., 1999; Reimann et al., 2010). An effective strategy to prevent com- moditization risks requires a balanced approach between efficiency and differentiation through e.g., brand positioning, service integration and investments in technological in- novation (Hax, 2005; John et al., 1999; Lieberman & Montgomery, 1998). Firms that do not invest continuously in differentiation strategies face the risk of drifting into price- based competition as imitation reduces first-mover advantages and creates homogene- ous products (Homburg et al., 2009; Lieberman & Asaba, 2006). To maintain differentiation, organizations need to create proprietary capabilities while following through with long-term innovation cycles (Hax, 2005; Lieberman & Montgom- ery, 1998). Companies that invest in research and development, offer unique services, 27 and implement process innovations can sustain competitive differentiation within in- tense market competition (Brownell & Merchant, 1990; Perera et al., 1999). Strategic alliances and vertical integration help organizations strengthen their supply chain while building competitive advantages through value-added differentiation (John et al., 1999; Reimann et al., 2010). The absence of proactive differentiation leads businesses into cost-reduction cycles which weaken their profitability and future market positioning ca- pabilities (Homburg et al., 2009; Lieberman & Asaba, 2006). Offering-related factors such as age, complexity and performance of products signifi- cantly influence the level of commoditization. Along with rapid advancement of technol- ogy and decreasing product life cycles which create a perpetual cycle of commoditization resulting from industries continuously transforming. According to Olson and Sharma (2008) the introduction of similar offerings by competitors leads to reduced differentia- tion and product maturity. Standardization and modularity of product designs while in- creasing efficiency simultaneously increases interchangeability which eventually reduces barriers of imitation (Closs et al., 2008). Technological advancements initially contribute to differentiation but can eventually lead to imitation by competitors and shorter time-to-market cycles (Olson & Sharma, 2008). According to Enke et al. (2022) technological diffusion removes proprietary ad- vantages by converting innovations into standard industry components. Modular prod- uct architectures further stimulate this by helping companies to reduce production costs, speed up time-to-market and enhance operational flexibility (Yu, 2011). However, it in- creases product interchangeability and leads to reduced opportunities for distinctive value propositions. The simplified architecture of products creates lower barriers to im- itation according to Closs et al. (2008) imitators need less R&D investment to replicate innovations. Under these conditions, firms must continuously develop enhancements to product features to prevent commoditization. 28 In industries with high levels of technological stability, along with growing market knowledge buyers start to focus more on price as they perceive less performance risk. Contrarily in industries with high perceived performance risk, firms are typically encour- aged to differentiate their products through quality features such as reliability and func- tionality (Grewal et al., 1994). As industries mature, performance risks diminish, which inhibits firms from using reliability as a value lever to command price premiums (Enke et al., 2022; Homburg et al., 2009). Additionally, with increasing industry maturity the ex- pectations of the market evolve as buyers typically gain more knowledge about product offerings and characteristics which leads them to view previously unique features as standard (Reimann et al., 2010). Buyer-related factors such as involvement, experience and expectations drive rapid com- moditization by altering how buyers make decisions and perceive product value. For ex- ample, the emergence of E-commerce platforms has revolutionized the transparency of product information thus driving buyers further toward price-conscious comparisons. Wagner et al. (2023) highlight that digital marketplaces enable users to compare prices more easily while lowering barriers to switching products and providing personalized recommendation algorithms which reduce firms' ability to maintain differentiation. The algorithmic recommendations strengthen this pattern by grouping together related products for easier comparisons thus reinforcing consumer perceptions of product in- terchangeability (Huang et al., 2021). Buyers that use price as their primary evaluation criteria shift toward cost-effective options, exhibit less brand loyalty, and have a worse perception of unique product features (Alba & Hutchinson, 1987). The formation of product similarity networks produces negative spillover effects which decrease the demand for premium products as buyers switch to lower-cost highly rated alternatives (Huang et al., 2021). Expectations about price and value among experienced buyers create additional challenges for differentiation strategies (Mooi & Frambach, 2012). Research shows that consumer willingness to pay for differentiation decreases 29 when they become more familiar with product categories (Albert, 2003; Hill, 1990). Buy- ers who develop digital marketplace skills start to view unique product attributes as or- dinary industry standards which diminishes product distinction according to Homburg et al. (2009). To fight against these pressures companies should place customer-centricity at the fore- front to make prices harder to compare while creating better value perceptions (Albert, 2003). To do this companies can, for example, provide customized after-sales services and develop subscription plans with tailored warranty options to build enduring cus- tomer relationships (Homburg et al., 2009). In this age of digital marketplaces and in- formed buyers, firms must proactively manage customer expectations through effective communication of product benefits and continuous innovation as otherwise, distinctive factors will become viewed as standard industry practices (Mooi & Frambach, 2012). Communication of benefits together with controlled innovation diffusion can help or- ganizations preserve their market differentiation (Zaichkowsky, 1985). Companies can maintain their profit margins through value-based pricing and bundling complementary services even when customers have access to complete pricing information (Enke et al., 2022). Market-related factors are the primary drivers for both competition and the develop- ment of commoditization in an industry. Forces affecting the increase of competition stem from a combination of globalization and deregulation. As weaker regulatory pro- tection and rising competition pushes companies to compete on price and thus fueling industry-wide product standardization (Enke et al., 2022). There is a substantial body of knowledge on how competitive pressure affects the devel- opment of commoditization. According to Jaworski and Kohli (1993) Consumer price sen- sitivity grows stronger when markets become more competitive because it creates con- ditions for aggressive price competition that weakens brand loyalty. Additionally, new market entrants as well as the increasing amount of similar products push companies to 30 neglect uniqueness over cost efficiency. Industries with low entry barriers are more vul- nerable to these pressures as firms are depending more on cost-based competition (D’Aveni, 2014). Price wars accelerate commoditization by diminishing differentiation while strengthen- ing consumer price sensitivity (Heil & Helsen, 2001; Homburg et al., 2009). According to Wagner et al. (2023) firms operating in highly competitive markets tend to adopt price- driven competition at a faster rate. Overreliance on cost cutting measures through e.g., outsourcing and automation accelerates commoditization because it destroys the ability to sustain differentiation (Matthyssens & Vandenbempt, 2008; Reimann et al., 2010). Research has extensively studied how globalization together with financialization affects markets. Technology diffusion across the globe speeds up through globalization because emerging economies benefit from cost-effective production systems (D’Aveni, 2014). Chinese, Indian and Southeast Asian low-cost manufacturers have lowered traditional market barriers leading to many industries focus on price competitiveness instead of technology development (Wagner et al., 2023). Financialization reshapes market behavior through volatility that affects previously sta- ble industries. The movement of institutional capital inflows into assets increases price correlations between asset classes thus reducing companies pricing power and leading to market convergence (Büyükşahin & Robe, 2014; Cheng & Xiong, 2014). Additionally, capital inflows increase market volatility which add to the weaker ability to control prices (Mensi et al., 2013; Reimann et al., 2010). Deregulation creates an environment which drives industries toward commoditization especially when it affects industries that were previously protected by governments. Ac- cording to Homburg et al. (2009) by removing the previously government-controlled en- try barriers to an industry, firms experience reduced ability to differentiate products. Telecommunications, energy, and finance sectors demonstrate the effect of liberalization 31 through which new competitors entered the market to produce intense price competi- tion (Weil, 1996). Along with the lower entry barriers, deregulation decreases protection for proprietary advantages (Reimann et al., 2010). As the relaxation of regulations leads to increasing standardization across industries (Wagner et al., 2023). 2.1.7 Responses to commoditization The following consolidation of responses is adapted from Matthyssens & Vandenbempt (2008), as described by Enke et al. (2022). The chapter differs from the antecedents of commoditization which relied heavily on the work of marketing scholars as it was built around the research of Matthyssens and Vandenbempt (2008) who in turn draw from strategic management literature. The authors propose that responding to commoditiza- tion can be done through innovation and superior offerings, customer bonding and re- lationship quality or operational excellence and fair value solutions. Two of these ap- proaches focus on differentiation without price competition but the third approach in- cludes price in relation to perceived value. A common way out of commoditization is for companies to use a combination of the responses (Matthyssens & Vandenbempt, 2008). Wagner et al. (2023) categorize the ways in which firms respond to commoditization into either escaping or accepting the commodity trap as proposed by Schallmo et al. (2018). Within the escaping category, firms concentrate on differentiation through branding, product customization, innovation, and service improvements. Matthyssens & Vanden- bempt (2008) as described by Enke et al. (2022), also supports this view by highlighting servitization and branding as the key tools that allow companies to maintain competitive advantage in commoditized markets. The first of the three approaches, innovation, and superior offerings, revolves around achieving this with strategic initiatives that promote servitization and branding. A holistic framework of the different processes and mechanisms of these responses as identified from the literature is listed in the table below. The cells with grey backgrounds 32 indicate different responses belonging to each of the categories and the white cells un- derneath those represent the different mechanisms through which they work. Innovation and superior of- ferings Customer bonding and rela- tionship quality Operational excellence and fair value solutions Servitization Developing strong customer relationships Cost leadership Smoothing services Enhancing customer relationships to defend against demand cycles Understanding cost structures and drivers Adapting services Segmentation and customer-tailored com- munication Achieving process efficiencies Substituting services Targeting specific customer segments Leveraging economies of scale Digital servitization Adopting a strong customer focus Expanding production to spread fixed costs across a larger output reducing per-unit costs Leveraging IOT Continuously creating superior customer value Systematic efficiency enhancements Predictive maintenance Aligning strategic focus with evolving market demands Cost engineering Data analytics for service delivery Actively integrating customer preferences Smart manufacturing Digital twins Implementing customer-focused selling Automation and robotics Smart services Implementing a CRM system Data analytics Branding Integrate customer data Cyber-physical systems Strategic positioning Customize service and interactions Predictive maintenance Value communication Foster enduring relationships Digital supply chains Customer branding Enhance customer interactions and market understanding Component innovation Create switching costs and barriers to entry Portfolio streamlining Focusing on customer experience Eliminating unprofitable product lines Managing all customer touchpoints Focusing on high-margin offerings Effective customer journey design Prioritizing core competencies Re-allocating resources to R&D Table 3. Consolidated responses to commoditization. Innovation and superior offerings include servitization, as a response to commoditization, which means manufacturers adding value enhancing services to their traditional product offerings (Oliva & Kallenberg, 2003). These additions create differentiation by leveraging 33 product-service bundles to promote long-term customer relationships. Cusumano et al. (2015) categorize servitization into three types. First to smoothing services, which are for example warranties, maintenance, and technical support. Then to adapting services which include customization, solution provision and advanced consulting to tailor offer- ings. Lastly, substituting services which are substituting traditional ownership with ser- vice-based alternatives such as SaaS. Servitization is also enhanced by digitalization, which opens new ways of differentiation. Digital servitization uses IoT, predictive maintenance and data analytics to improve ser- vice delivery and allows manufacturers to provide proactive, usage-based services that enhance performance and customer value (Gebauer et al., 2021; Mosch et al., 2021). Digital twins are virtual replicas of physical products that enable real time monitoring, predictive maintenance, and performance optimization (Grieves, 2019). This leads to lower operational costs, higher service efficiency and bespoke solutions which strengthen market differentiation. Smart services which are powered by IoT, AI and data analytics further allow firms to offer real time, personalized solutions (Gebauer et al., 2021). Service-based differentiation requires firms to realign their internal capabilities with market demands, redesign their business models, update their learning processes, and rebuild their overall capabilities (Forkmann et al., 2017; Parida et al., 2014). B2B markets benefit from digital servitization as it creates a foundation for value-based differentiation. The implementation of technological integration combined with cus- tomer relationship management and service enhancements allows firms to establish competitive advantages in industries that are heavily commoditized. The adoption of digital-driven value propositions creates better conditions for businesses to protect their essential supplier position and financial stability (Ulaga & Eggert, 2006). A powerful brand enables companies to set higher prices along with increasing customer commitment and establishing market distinction (McQuiston, 2004). As demonstrated by McQuiston (2004), commodity products can achieve successful branding through 34 strategic positioning combined with value communication. Pennington and Ball (2009) describe customer branding as a method to establish unique brand identities based on customer requirements. Customer bonding and relationship quality have a central role in mitigating commoditi- zation as they establish lasting ties that create distinct value for clients beyond price (Matthyssens & Vandenbempt, 2008). By establishing deep connections with customers firms gain resistance to price wars and market standardization since they become inte- gral to the customer experience. The approach works optimally in markets with fluctu- ating demand since firms can use relationship-based approaches to mitigate instability. Firms in the fine paper industry as studied by Alajoutsijärvi et al. (2001) established long- term customer relationships to absorb fluctuations in market demand which sustained their operations as they achieved better demand forecasting and production planning which minimized their exposure to market fluctuations. Albert (2003) supports the ap- proach of micro-segmentation combined with customer-tailored communication as a method for companies to maintain customer retention while personalizing their value offerings in standard products. According to Narver & Slater (1990) customer orientation allows firms to achieve supe- rior customer value through continuous innovation and strategic alignment with the di- rection of market requirements. Customer-oriented firms systematically achieve higher performance through their ability to detect market shifts and their proactive response capability which enables them to develop adaptive business models that counteract commoditization (Frambach et al., 2016). Furthermore, firms implementing customer focused selling strategies have better financial results and durable product differentia- tion beyond mere feature comparisons (Leischnig & Kasper-Brauer, 2016). The implementation of CRM systems enables these customer-oriented business models that help firms break free from commoditization by focusing on long-term relationships instead of price. The CRM tool integrates customer information with customized services 35 and individualized communication to build lasting connections between a company and its clients (Payne & Frow, 2005; Reinartz et al., 2004). The implementation of CRM ena- bles organizations to improve their customer interactions while building a detailed un- derstanding of market needs that allows them to adjust proactively. According to Ernst et al. (2011) companies that implement a robust CRM system enhance their product performance by integrating market intelligence with customer insights which leads to better satisfaction and loyalty rates. The implementation of CRM acts as an industry dif- ferentiator in standardized markets since it creates switching costs and barriers to entry by making companies fundamental components of customer business processes (Reimann et al., 2010). Firms increasingly understand the importance of delivering consistent and personalized interactions through all customer touchpoints (Verhoef et al., 2009; Lemon & Verhoef, 2016). Organizations that execute their customer experience well through the pre-pur- chase, purchase, and post-purchase stages build brand loyalty and maintain market po- sition (Homburg et al., 2017). Companies that develop effective customer journey maps through straightforward and convenient interactions or exciting unpredictable experi- ences improve brand image while extending customer relationships (Siebert et al., 2020; Kuehnl et al., 2019). Operational excellence and fair value solutions focus on cost leadership together with efficiency improvements and portfolio optimization which recognizes price as a deter- mining factor for customer perceived value (Enke et al., 2022). Matthyssens and Vanden- bempt (2008) state that that firms must achieve superior cost efficiency without engag- ing in a "race to the bottom" in pricing. Companies achieve this through economies of scale, digital transformation, and process innovations to create sustainable market ad- vantages for profitability even in price-sensitive markets. A core element of this ap- proach is to establish cost leadership with lowest production costs among industry com- petitors (Porter, 1980). 36 Expanding production enables firms to achieve cost leadership by leveraging economies of scale. Higher production volumes distribute fixed costs across more units which de- creases the per-unit costs (Porter, 1980). However, these cost reduction strategies need to be accompanied by systematic efficiency improvements (Schallmo et al., 2018). One way to achieve this is through smart manufacturing utilizing automation combined with robots and data analytics, as this reduces costs without compromising quality (Kusiak, 2018). According to Parhi et al. (2021) firms can further reduce operational downtimes and en- hance resource utilization by integrating cyber-physical systems together with predictive maintenance and digital supply chains. The importance of this strategy is highlighted in high-technology industries where cost control directly affects competitive performance (Rangan & Bowman, 1992). Semiconductors, consumer electronics, and telecommuni- cations which have rapidly fluctuating cost environments due to technological advance- ments are an example of such industries. According to Kusiak (2018) firms operating in those industries can use component innovation and smart manufacturing to achieve su- perior performance-to-price ratios and compete with aggressive pricing without eroding profitability. Portfolio streamlining as a compression strategy enhances profitability by itself. This in- volves the company getting rid of unprofitable product lines and focusing on the profit- able ones while prioritizing core competencies to optimize resource allocation. Product compression helps organizations to avoid destructive price wars because it allows com- panies to eliminate unprofitable products which enables more investment in R&D across the remaining product lines. However, to successfully execute a portfolio compression firms need to prevent losing customers and their presence in their market, setting de- mands for customer relationships and communication of strategic intent (Rangan & Bow- man, 1992). 37 2.2 Dynamic capabilities This chapter explores the theoretical foundations of dynamic capabilities and explores how they can be used as a framework for understanding how firms achieve and sustain competitive advantage. Building an argument that supports dynamic capabilities as a valuable lens to exploring how firms can adapt to survive commoditization. First by look- ing at the foundations of dynamic capabilities, and their origins as a solution to address the weaknesses of previous strategic management frameworks. Then by distinguishing them from ordinary and core capabilities as well as introducing Teece's (2007) influential tripartite model of sensing, seizing, and transforming. Additionally, this chapter reviews the key debates within DC literature including the nature of DCs as either routinized or improvisational and the firm specific or ecosystem level of analysis debate. Finally, the foundations section concludes with an exploration of the microfoundations of DC. The second part of the chapter focuses on explaining what existing literature knows about the different processes and mechanisms that dynamic capabilities work through. Exploring the processes behind sensing, seizing, and transforming along with the neces- sary support mechanisms and the microfoundations that enable these processes. Addi- tionally, this chapter sheds light on how the deployment and effectiveness of DCs de- pend on both internal and external conditions by addressing both lifecycle and contex- tual factors. Altogether, building a solid theoretical base for how to view dynamic capa- bilities as a strategic response to commoditization challenges. The most central and rel- evant DC theory contributions drawn in this thesis are listed in the table below. The relevant key contributions to the DC literature listed in Table 4 below were utilized to ground the analysis. These studies were selected due to their impact on the develop- ment of DC theory. Teece et al. (1997) seminal paper, currently cited over 21 thousand times according to Scopus, established the core DC framework as a firm’s ability to “in- tegrate, build, and reconfigure competencies”. Ten years later, published Teece (2007) builds on the earlier work by exploring the microfoundations of the sensing, seizing, and 38 reconfiguring capabilities. A complementary perspective into the nature of dynamic ca- pabilities is attained from Eisenhardt & Martin (2000), another widely cited paper with over ten thousand citations found from Scopus. Further expanding the understanding of how DCs are developed, Zollo & Winter (2002) offer insights into critical learning mech- anisms. Finally, O'Reilly & Tushman (2008), provided a link between DCs and organiza- tional adaptation by conceptualizing ambidexterity as simultaneous exploration and ex- ploitation. Author(s) Study focus Data/methodology Main contribution Teece et al., 1997 How firms achieve and sus- tain competitive advantage in rapidly changing markets. A synthesis and critique of strategic management theo- ries to develop the DC frame- work. The ability to sense and seize opportunities has more utility in changing environments than traditional strategic planning approaches. Teece, D. J., 2007 Nature and microfoundations of dynamic capabilities. Combines social and behav- ioral sciences to identify mi- crofoundations of DCs and in- tegrates strategy and innova- tion literature into a frame- work. DCs enables to establish, de- ploy and protect intangible assets crucial for superior long-term performance. Eisenhardt & Martin, 2000 Nature of dynamic capabili- ties and development of mar- ket dynamism to advance the resource-based view (RBV). Adopts an empirical approach to view dynamic capabilities as embedded firm processes. DCs are distinct organiza- tional processes that have similar characteristics among high-performing organiza- tions. Zollo & Winter, 2002 Development of dynamic ca- pabilities through routinized activities. Develops a framework that links behavioral and cognitive organizational learning theo- ries to the evolution of dy- namic capabilities. DCs develop from tacit expe- riences which co-evolves with the process of articulating and codifying explicit knowledge. O'Reilly & Tushman, 2008 Synthesis of DC and ambidex- terity theory to explain how firms sustain competitive ad- vantage through exploration and exploitation. Reviews and integrates re- search on DCs and ambidex- terity to identify propositions and examples of ambidexter- ity as a dynamic capability. How ambidexterity functions as a dynamic capability for or- ganizational adaptation through time. Efficiency and innovation are not necessarily trade-offs. Table 4. Central prior studies on dynamic capabilities. 2.2.1 Conceptualizing dynamic capabilities. Dynamic capabilities were developed to address the limitations found in earlier frame- works such as five forces (Porter, 1979) which did not properly define firms and their internal capabilities (Teece, 2009). Drawing from the entrepreneurship, behavioral the- ory of the firm, transaction cost economics and the evolutionary view of the firm (Cyert 39 & March, 1963; Williamson, 1991; Nelson & Winter, 1982) to create a framework that enables firms to maintain superior performance in dynamic environments. Firm capabilities are a central concept of strategic management as they describe an or- ganization’s ability to deploy and coordinate resources to achieve its strategic targets (Teece, 2014). However, not all capabilities have a similar impact on strategic outcomes. The main distinction lies between ordinary capabilities which concentrate on operational efficiency and DCs that enable firms to adapt and transform their resource base (Winter, 2003; Teece, 2014). Ordinary capabilities also known as operational capabilities are uti- lized to execute established business processes efficiently enabling firms to sustain their regular daily operations (Winter, 2003). They are essential for firms but lack in terms of inherent adaptability, although some scholars like Helfat and Winter (2011) note that firms can use them for dynamic purposes as some level of change always exists. Additionally, there are core capabilities which are the fundamental embedded compe- tencies forming the basis of a firm's strategic positioning and competitive differentiation (Prahalad & Hamel, 1990). If not modified according to changes happening in the mar- kets, they can become core rigidities (Leonard-Barton, 1992). Enabling this modification are DCs which allow firms to maintain their existing core capabilities while continuously learning and adapting to change. Since their inception, DCs have been defined as the mechanisms of resource base adap- tation aiming for sustained competitive advantage (Schilke et al., 2018). According to the definition by Teece et al. (1997) they are “the firm’s ability to integrate, build, and recon- figure internal and external competences to address rapidly changing environments”. The term “dynamic” is used to emphasize the changing nature of the environment and the term “capability” as adapting, integrating, and transforming organizational skills and resources (Teece et al., 1997). 40 Eisenhardt & Martin’s (2000) definition of DCs as "specific, identifiable processes (e.g. product development and strategic decision-making) that create value in dynamic mar- kets", emphasizes that they are repeatable yet flexible processes. Helfat (2007) further defined DCs as "the capacity to purposefully create, extend, or modify the resource base”, emphasizing their deliberate and goal-oriented nature. However, a major debate re- mains regarding whether DCs are necessarily unique and inimitable (Teece, 2014), or whether they can be treated as “best practices” that are comparable across firms (Eisen- hardt & Martin, 2000). Teece (2007) expanded the framework by proposing a tripartite scheme of sensing, seiz- ing, and transforming. He emphasized the microfoundations of DCs, pointing out that they are not only found in the organizational processes but also in managerial cognition which is affected by firm structures and the bounded rationality concept of the behav- ioral theory of the firm (March et al., 1993; Arndt & Pierce, 2018). It is important to note that DCs cannot be bought as they must be developed through learning, experience, and deliberate investment (Teece & Al-Aali, 2012). The tripartite framework offers a structured understanding of dynamic capabilities as an integrated process. The foundations of sensing capabilities are influenced by organiza- tional goals and bounded rationality. Whereas the seizing capabilities capture the “choice and control” aspects of the behavioral theory of the firm (March et al., 1993; Arndt & Pierce, 2018). Lastly, transforming capabilities mitigate the risk of firms falling into competency traps where their existing core capabilities become core rigidities (Leonard-Barton, 1992). Several key debates remain. One of the issues is the level of routinization as opposed to improvisation in DCs. Teece (2007) stated that DCs are a systematic process that can be systematically developed. For example, a firm might have a structured approach to new product development. Whereas, Eisenhardt & Martin (2000) had argued that in high- velocity markets, DCs are often more of an emergent and experimental process requiring 41 real-time adaptation. Suggesting that the most appropriate approach may be contingent on the industry context. A second remaining issue is the level of analysis. While Teece (2007) focuses on firm- specific capabilities, Adner (2016) on the other hand emphasizes that DCs often involve exchanges within ecosystems and extend beyond firm boundaries. For instance, the abil- ity of a manufacturer to innovate may not only depend on its internal R&D but also on its ties with suppliers. The RBV theory (Wernerfelt, 1984; Barney, 1991) a direct predecessor to DC theory states that firms can gain superior performance through possessing resources that are valuable, rare, inimitable, and non-substitutable (VRIN). The theory has been criticized for being static, and thus, not fully capturing how firms respond to changing environ- ments. DC theory addresses this limitation by describing how firms change, reconfigure, and develop resources to stay relevant in the future. Organisations with strong DCs can continuously adapt their resource base to address disruptions (Helfat, 2007). 2.2.2 Processes and mechanisms of dynamic capabilities This chapter explores the processes and mechanisms that enable firm adaptation as dis- cussed in the foundations of dynamic capabilities chapter. Additionally, positioning them within the strategic management literature and critically assessing their contributions. Although there is a consensus on the strategic role of DCs, there is still much debate on their nature and how they should be implemented. One of the most widely used frameworks is Teece’s (2007) tripartite framework (Linde et al., 2021). Its mechanisms ensure that firms can identify changes in their environment, align resources accordingly, and redesign their capabilities to remain competitive. Im- portantly, DCs provide firms with a set of strategic decisions that can improve their per- formance (Eisenhardt & Martin, 2000; Teece, 2007). This chapter will discuss each of these processes in detail and then examine the microfoundations of each of them. 42 Sensing is the ability through which a firm identifies, understands, and anticipates changes taking place in its environment. This entails proactively gathering market intel- ligence, investing in R&D, and stimulating knowledge-sharing mechanisms (Teece et al., 1997). Organizational learning is critical in this regard, making sure that firms are open to identifying market changes (Zollo and Winter, 2002). However, a debate exists on whether sensing has more to do with being proactive or reactive. According to Teece (2007), firms should proactively explore emerging trends while Eisenhardt and Martin (2000) propose that firms tend to use more adaptive incremental sensing. The assump- tion of the proactive approach is that firms can accurately forecast future trends, while the reactive approach acknowledges the impact of volatility in different environments. Managerial cognition is also very relevant as biases and cognitive heuristics affect the interpretation of market signals (Barreto, 2010). Seizing entails the exploitation of opportunities previously identified through the sens- ing capabilities. This involves re-allocation of resources, business model innovation and purposeful investments (Helfat, 2007). As discussed by Bingham and Eisenhardt (2011) these activities are closely related to the different decision-making processes, organiza- tional flexibility and the coordination of complementary assets conducted by firms. One of the central questions raised concerning seizing capabilities is the extent to which dy- namic managerial capabilities play a role (Adner & Helfat, 2003). Some scholars have pointed out that the role of management expertise in coping with uncertainty is crucial, while others have argued that the structure and procedures of the firm are also im- portant (Teece, 2007). Another issue is the question of speed versus strategic con- sistency. Eisenhardt and Martin (2000) has recommended quick decision-making in dy- namic markets while Teece (2007) has warned against making hurried decisions. Reconfiguring involves adapting an organization’s assets to maintain competitiveness. Involving the reallocation of resources, process innovation and change management (O’Reilly & Tushman, 2008; Teece, 2007). It is an especially crucial capability when facing 43 disruptions in technology, regulations, or competitive dynamics (Helfat, 2007). How- ever, to remain on course strategically, firms must balance this flexibility with stability. Therefore, organizational ambidexterity, which is the process of aligning the optimiza- tion of existing competencies with the creation of new ones, becomes essential (O’Reilly & Tushman, 2008). The development of DCs is enabled by several mechanisms. Crucial for all of them is organizational learning including both experimentation through trial and error, as well as deliberate learning by codifying best practices (Zollo & Winter, 2002). On top of the ability to absorb external market information (Cohen & Levinthal, 1990). Typically, DCs are embedded in the different organizational routines and managerial decision-making processes to enhance predictability and adaptation (Eisenhardt & Martin, 2000). Addi- tionally, the different leadership behaviors, company culture and cognitive capabilities influence how firms navigate change (Teece, 2007). 2.2.3 Microfoundations of dynamic capabilities Microfoundations of DCs are critical for capturing the full picture of DC processes and mechanisms. According to Teece (2007) they are the “distinct skills, processes, proce- dures, organizational structures, decision rules, and disciplines” behind those processes. The research on microfoundations examines higher-level phenomena through lower- level elements, consisting of main effects I.e., individuals, processes, and structures along with interaction effects I.e., the relationships of these elements, leading into dy- namic capabilities (Felin et al., 2012). Microfoundations of sensing capabilities include collection of market intelligence, inter- pretation of external developments, identification of target market segments, under- standing customer needs and creating new business models (Conboy et al., 2020). Fur- thermore, and most importantly nurturing an internal culture of awareness to external changes (Teece, 2007; Kump et al., 2019). 44 Microfoundations of seizing capabilities include e.g., evaluating decision-making prac- tices, partnerships, distribution channels, product development initiatives and resource mobilization activities to choose from to capture the identified opportunities (Conboy et al., 2020). Additionally, they include the routines a firm establishes for decision-mak- ing under uncertainty involving reallocating resources, adapting business models and fostering close relationships with key stakeholders (Kump et al., 2019; Teece, 2007). Microfoundations of reconfiguring capabilities include different re-engineering pro- cesses, reconfiguring capabilities, knowledge management, co-specializing assets, and dynamic asset alignment (Conboy et al., 2020). Additionally, they include processes for organizational restructuring, process development routines, leadership development programs and knowledge management and transferring capabilities (Kump et al., 2019; Teece, 2007). 2.3 Applying the dynamic capabilities lens to commoditization This chapter integrates the two streams of literature and proposes a framework that can help firms to survive commoditization. Commoditization poses a major challenge to sus- tain competitive advantage and firm profitability (D’Aveni, 2014; Enke et al., 2022). How- ever, traditional static frameworks do not offer much guidance on how to address rapidly changing and commoditized markets (Teece, 2009), whereas the DC approach offers a useful way of understanding how firms can adapt, innovate and reconfigure their re- sources to avoid getting stuck in price competition (Teece et al., 1997). This thesis argues that the utilization of sensing, seizing, and transforming capabilities (Teece, 2007), and their underlying microfoundations (Felin et al., 2012; Teece, 2007), is essential for achieving differentiation, long lasting customer relationships and opera- tional excellence when trying to survive commoditization (Matthyssens & Vandenbempt, 2008). The chapter begins by linking the drivers of commoditization (Enke et al., 2022) with sensing capabilities essential to understanding market change. Then moving to an- alyzing how seizing capabilities (Teece, 2007) can help firms to deploy responses such as 45 servitization (Oliva & Kallenberg, 2003), branding (McQuiston, 2004) and cost leadership (Porter, 1980; Matthyssens & Vandenbempt, 2008) to answer commoditization. Then lastly, exploring how transforming capabilities (Teece, 2007) enable firms to build long- term resilience and avoid commodity traps (D’Aveni, 2014). 2.3.1 Sensing the drivers of commoditization Despite commoditization influencing products and industries differently (Reimann et al., 2010; Luther, 2022; Wagner et al., 2023) the result is eventually the same. Firms’ ability to charge premium prices and remain profitable is drastically affected (D’Aveni, 2014; Enke et al., 2022). Traditional strategic frameworks which are useful for analyzing indus- try structures are not very helpful when it comes to adapting to dynamic markets (Teece, 2009). From this perspective, the DC framework becomes a valuable lens for analyzing how firms can survive and even excel when experiencing commoditization (Teece et al., 1997). One of the most important factors in fighting commoditization is the ability to detect changes occurring in the market. Sensing capabilities, as described by Teece (2007) in his tripartite model, offer a perspective into what the different processes and mechanisms related to this capability are. To avoid falling into the commodity trap (D’Aveni, 2014) it is not enough to just respond to market changes, instead a capability is needed to pro- actively anticipate and interpret how different changes in the market can potentially de- velop into challenges like commoditization (Teece, 2007). The antecedents of commoditization discussed in existing literature e.g. (Enke et al., 2022), help companies to direct their sensing efforts into commoditization drivers with the most relevance for their specific circumstances. For instance, rapidly advancing dis- ruption to technology (Enke et al., 2022; Olson & Sharma, 2008) can make existing prod- ucts obsolete and lead to more affordable options for buyers. Companies that have the needed sensing capabilities, supported by adequate R&D spending and a systematic way 46 of tracking technological advancements (Teece, 2007; Kump et al., 2019) are in a better position to detect these disruptions. In the same way, growing market transparency stemming from e.g., e-commerce plat- forms (Wagner et al., 2023) requires adequate sensing capabilities and mechanisms to monitor competitor prices, product attributes and customer feedback in real time (Teece, 2007). This includes gathering data, but more importantly the ability to interpret it to produce meaningful insights to recognize emerging threats and opportunities (Conboy et al., 2020; Teece, 2007). In addition, sensing capabilities need to be developed to un- derstand changes in customer expectations, and price sensitivity (Mooi & Frambach, 2012; Teece, 2007). Utilization of CRM systems could be a viable option for this (Payne & Frow, 2005; Reinartz et al., 2004) along with market research and a culture of customer intimacy embedded into the company (Teece, 2007; Reimann et al., 2010). The debate between proactive and reactive sensing (Teece, 2007; Eisenhardt & Martin, 2000) is especially important for this perspective. Proactive sensing in most situations is preferred (Teece, 2007), but firms operating in industries experiencing rapid changes may have no other options but to rely on developing agile and responsive sensing mech- anisms to cope with unexpected changes (Eisenhardt & Martin, 2000). However, what really determines if a firm can anticipate and interpret the drivers of commoditization is the microfoundations of sensing regarding how well they gather market intelligence, un- derstand it, and create a culture of external awareness (Conboy et al., 2020; Kump et al., 2019; Teece 2007). 2.3.2 Seizing the opportunities to respond After identifying the possibility of future commoditization or its current impact, firms must be able to capture opportunities to differentiate themselves or reduce negative impacts. This means utilizing the seizing capabilities in the DC framework which entails making strategic choices and backing those decisions by committing to investing re- sources (Helfat, 2007; Teece, 2007). 47 Such choices are directly related to the following strategies that firms can use to respond to commoditization. For example, firms can use the seizing capabilities to employ ser- vitization strategies that imply the deployment of value-added services to products and thus changing the competitive focus away from price (Matthyssens & Vandenbempt, 2008; Oliva & Kallenberg, 2003). Requiring the ability to change business models, de- velop new service offerings and harmonize services to product offerings (Cusumano et al., 2015; Forkmann et al., 2017). Another key response to commoditization is strong branding (McQuiston, 2004) which as well depends on seizing capabilities (Teece, 2007) to e.g., capture opportunities to build customer loyalty and create perceived differentiation on factors not relating to price. This requires committing to spending on marketing, creating distinct brand iden- tities (McQuiston, 2004) and developing strong customer relationships (Matthyssens & Vandenbempt, 2008; Pennington & Ball, 2009; Stanton & Herbst, 2005). Even the responses focused on operational excellence and fair value solutions (Mat- thyssens & Vandenbempt, 2008) cannot be implemented without seizing capabilities (Teece, 2007). As they require firms to have the capability to implement the cost-cutting initiatives (Enke et al., 2022), process efficiency improvements (Schallmo et al., 2018) and portfolio optimization (Rangan & Bowman, 1992) without diminishing the perceived value of their offerings. Necessitating the capability to make the right decisions concern- ing reallocating resources (Teece, 2007), adopting new technologies such as smart man- ufacturing (Kusiak, 2018) and process innovation (Teece, 2007; Kump et al., 2019). Hence, the microfoundations of seizing, for instance, decision-making routines, resource allocation processes, and partnerships with other firms (Conboy et al., 2020; Kump et al., 2019; Teece, 2007) are essential to the effective implementation of any commoditization response. The debate on the appropriate tradeoff between the speed of decision making and strategic consistency (Eisenhardt & Martin, 2000; Teece, 2007) becomes especially 48 relevant when seizing opportunities in environments where responses to competition must be made fast. 2.3.3 Reconfiguring to escape the commodity trap Responding to commoditization is not a one-time occurrence, as to be truly resilient over the long-term and to prevent getting caught in any of the commodity traps identified by D’Aveni (2014), firms need to have the ability to transform. The reconfiguring capabilities enable firms to adapt their resource base according to changes happening in the markets and therefore stay ahead of competition (Teece, 2007). The deterioration trap (D’Aveni, 2014) which is a price war, can be combatted with re- configuring capabilities that enable operational excellence through process innovation (Matthyssens & Vandenbempt, 2008; Teece, 2007) or alternatively by introducing a dis- ruptive innovation that creates entirely new value propositions. To escape from the proliferation trap (D’Aveni, 2014) which leads to market fragmenta- tion through niche offerings firms need transforming capabilities to alter their product portfolio (Rangan & Bowman, 1992; Teece 2007) focus on specific customer segments (Albert, 2003) or create new business models to e.g. aggregate demand (Teece, 2007). The escalation trap (D’Aveni, 2014) entails unsustainable price reductions simultane- ously to increasing product feature enhancements, necessitates transforming capabili- ties that can change the basis of competition (Teece, 2007), for instance, through cus- tomer experience (Lemon & Verhoef, 2016), service integration (Olivia & Kallenberg, 2003) or creating a strong brand ecosystem (McQuiston, 2004). The microfoundations of the reconfiguring