🧭 Dojo Compass
Module: Strategy, Markets and Competitive Advantage; Entrepreneurship, Market Execution and Scaling
Focus Area: Go-To-Market and Positioning; Customer Value and Loyalty
Key Article Point
For much of modern business, pricing strategy has operated within a relatively familiar framework.
Supply increases, prices tend to fall. Demand increases, prices tend to rise. Competitors occasionally introduce aggressive pricing, or unexpected events create temporary price spikes, but these are generally treated as disruptions to an underlying market structure.
Artificial intelligence is changing this dynamic.
AI can dramatically increase the supply of certain products and services. Work that previously required a specialized human expert may increasingly be performed, or at least substantially assisted, by AI.
Translation is a simple example. A relatively limited number of people may once have possessed the ability to translate a document from English into Japanese at a professional level. AI has dramatically expanded the effective supply of translation capability.
The same phenomenon is emerging across many professional and knowledge-intensive activities.
This creates a new strategic challenge:
What happens to a firm’s pricing power when the supply of what it sells can increase dramatically and rapidly?
The answer is not simply to lower prices.
It is to understand what is becoming commoditized, redesign the business around the parts that remain valuable, and use AI-driven commoditization itself as a source of competitive innovation.
🎯 Key Challenge
AI is creating what can be called creeping commoditization.
Rather than an entire product or service suddenly becoming a commodity, individual components of the offering become commoditized progressively.
Imagine a translation company.
Historically, its value proposition might have been relatively simple:
We translate documents.
But suppose AI can now perform 85% of the underlying translation work at extremely low cost.
The customer may reasonably ask:
“Why should I pay the same price when the underlying work can now be produced much more cheaply?”
The translation company faces a fundamental strategic problem.
It cannot sustainably charge a premium for work that customers can increasingly obtain elsewhere at a fraction of the price.
But abandoning translation entirely may also be a mistake.
The remaining 15% may contain substantial value:
- cultural interpretation;
- legal and regulatory understanding;
- localization;
- quality assurance;
- industry expertise;
- strategic advice;
- accountability;
- project management;
- understanding the customer’s objectives.
The challenge is therefore not simply:
“How do we defend our price?”
It is:
“Which parts of our value proposition are becoming abundant, which remain scarce, and how should we redesign our offering around that distinction?”
This is increasingly a strategic rather than merely a pricing question.
🥋 Dojo Solution
1. Map the Commoditization Curve
The first step is to divide the firm’s offerings into three categories:
A. Already Commoditized
These are products or services where customers can obtain acceptable substitutes at very low cost.
Trying to maintain a large premium here is increasingly difficult.
B. Likely to Become Commoditized
These are areas where AI or other technologies are rapidly increasing supply and reducing production costs.
These areas require active strategic planning because today’s competitive advantage may disappear tomorrow.
C. Likely to Remain Differentiated
These are areas where value depends on factors that are more difficult to replicate.
These might include:
- trust;
- judgment;
- relationships;
- accountability;
- specialized expertise;
- physical execution;
- complex integration;
- reputation;
- domain-specific knowledge;
- strategic interpretation;
- customer intimacy.
The objective is not to predict the future perfectly.
It is to create a commoditization map that helps management understand where pricing pressure is likely to emerge.
2. Stop Charging Premium Prices for Commodity Value
Once a component becomes commoditized, the firm has a choice.
It can attempt to defend a premium price.
It can abandon the activity.
Or it can embrace the commoditization and redesign the business around it.
The third option is often the most interesting.
Suppose AI makes translation dramatically cheaper.
A translation company could continue charging high prices for translation and gradually lose customers.
Or it could eliminate much of the traditional translation cost using AI and provide translation as part of a broader service.
The company could then price the combined offering competitively while charging for the higher-value layer.
This produces a powerful strategic principle:
Do not fight commoditization when you can incorporate it into your own competitive model.
3. Build the Value Layer Above the Commodity
The most important strategic question becomes:
“What can we build on top of the commoditized component that customers genuinely value?”
This is where differentiation moves.
The commodity becomes the foundation.
The value-added layer becomes the competitive engine.
For example:
Translation → Localization → Market Entry Support
Or:
Accounting → Financial Analysis → Strategic Planning
Or:
Data Processing → Analysis → Decision Support
Or:
Software Development → Implementation → Business Transformation
The company is no longer selling the commoditized activity by itself.
It is incorporating that activity into a broader solution.
This can produce an important customer advantage as well.
Customers often prefer a complete solution from one trusted provider rather than having to coordinate multiple specialized providers.
Thus, commoditization can actually create an opportunity to broaden the offering.
4. Make Pricing Reflect the New Value Architecture
Pricing should follow the new structure of value.
If the commodity component has become inexpensive, the company should not pretend that it remains scarce.
Instead, pricing can increasingly reflect:
- outcomes;
- expertise;
- risk reduction;
- convenience;
- speed;
- integration;
- accountability;
- customization;
- strategic value.
This may mean moving from:
Price per unit of work
toward:
Price for a complete solution or outcome.
The distinction is significant.
A customer may no longer be willing to pay $X for 10,000 translated words.
But they may be willing to pay considerably more for a package that helps them successfully enter a foreign market.
The translation becomes an enabling component rather than the entire value proposition.
5. Treat Pricing Innovation as Product Innovation
In the AI era, pricing strategy and product strategy increasingly converge.
When technology changes the cost of producing something, the company must reconsider not only its price but also what it is actually selling.
This means innovation does not necessarily require inventing an entirely new product.
Innovation can mean:
- redesigning the service;
- bundling previously separate activities;
- improving the customer experience;
- adding strategic expertise;
- automating low-value activities;
- providing faster delivery;
- offering greater accountability;
- moving into adjacent services.
The key question becomes:
“What new combination of capabilities can we offer that creates more customer value than the commoditized component alone?”
⚙️ The Framework
🏗️ Putting It into Practice
Step 1. Deconstruct Your Offering
Take your primary product or service and break it into its component activities.
Ask:
What exactly are customers paying us for?
Do not stop at the obvious product.
Identify the underlying tasks, processes, expertise, relationships and outcomes.
Step 2. Classify Each Component
Place each component into one of three categories:
Already commoditized → Becoming commoditized → Remains differentiated
This creates your initial Commoditization Map.
Step 3. Identify the Vulnerable Revenue
Determine how much of your current revenue depends on activities that are likely to experience significant pricing pressure.
This is strategically important.
A company can have strong revenue today while sitting on a business model that is becoming structurally weaker.
Step 4. Identify the Scarce Value
Ask:
What can customers still not easily obtain from AI or low-cost competitors?
Look for:
- judgment;
- integration;
- trust;
- relationships;
- accountability;
- specialized knowledge;
- physical presence;
- complex problem solving;
- industry context;
- measurable outcomes.
This is where the future premium is likely to reside.
Step 5. Rebuild the Offering
Instead of abandoning the commoditized component, ask:
“Can we use the lower cost of this component to build a better overall solution?”
Use technology to make the commodity component inexpensive.
Then place a differentiated value layer around it.
Step 6. Reconsider Your Pricing Model
Test whether your pricing should shift from:
Input → Output
toward:
Solution → Outcome → Value
For example, rather than charging for translation alone, consider pricing a broader market-entry solution.
Rather than charging for hours of analysis, consider pricing around the decision-support service being delivered.
Step 7. Expand Horizontally
Once you have successfully commoditized part of your own offering, ask:
“What adjacent customer problem can we now solve?”
This creates a powerful growth mechanism.
A translation company might move into localization.
Localization might lead to market-entry advice.
Market-entry advice might lead to regulatory support.
The business begins moving from a narrow product toward a broader customer solution.
Step 8. Review the Commoditization Map Regularly
AI-driven change is unlikely to happen once.
New capabilities will continue to emerge.
A service that remains differentiated today may become partially commoditized tomorrow.
Therefore, review the firm’s commoditization map regularly.
Ask:
What has become cheaper?
What is becoming abundant?
What remains scarce?
What new value can we create above the changing technology frontier?
📌 Key Takeaways
- AI is dramatically increasing the supply of certain products and services, creating sustained downward pricing pressure.
- Commoditization is often progressive rather than instantaneous: individual layers of an offering become commoditized over time.
- Firms should distinguish between what is already commoditized, what is likely to become commoditized, and what is likely to remain differentiated.
- Do not try to maintain premium pricing for value that customers can increasingly obtain cheaply elsewhere.
- Instead, consider commoditizing the commoditized component yourself.
- Use the resulting cost advantage to build a higher-value layer around it.
- The future premium may increasingly reside in judgment, trust, integration, accountability, relationships, expertise and outcomes.
- Pricing strategy increasingly becomes product and service strategy.
- Innovation does not necessarily mean creating an entirely new product; it can mean creating a new combination of existing capabilities.
- Customers may prefer a complete solution from one provider rather than coordinating multiple providers.
- Once a firm has built a differentiated value layer, it can expand horizontally into adjacent customer problems.
- Competitive advantage increasingly depends on the ability to move faster than commoditization.
🌿 Reflection
For many years, a company’s competitive advantage could be built around possessing something relatively scarce.
Specialized knowledge was scarce.
Certain skills were scarce.
Information was scarce.
The people capable of performing certain tasks were scarce.
AI is changing this equation.
When technology makes a capability abundant, its price tends to come under pressure.
This creates a difficult but important realization:
Some of the things that made your company valuable yesterday may not make it valuable tomorrow.
That does not mean the company is doomed.
It means the company needs to move.
The strategic mistake is to defend yesterday’s scarcity after it has disappeared.
The better response is to ask:
“If this becomes cheap, what becomes valuable next?”
That question can become an engine of innovation.
The translation company should not necessarily fight AI.
It can use AI to make translation dramatically cheaper and then build something more valuable around it.
A company that once translated documents might eventually help customers understand foreign markets, localize products, establish relationships and enter new countries.
The original service has not disappeared.
It has become infrastructure for a larger value proposition.
This is perhaps the most important pricing lesson of the AI era.
The objective is not simply to protect margins.
It is to continuously move the business toward the parts of the value chain where customers still perceive meaningful scarcity.
In other words:
When technology commoditizes what you sell, use the technology to reinvent what you sell.
The firms most likely to thrive will not necessarily be those that resist commoditization most successfully.
They will be those that learn to absorb commoditization, redesign their offerings and repeatedly move their differentiation upward and outward.
⚔️ Dojo Mission
Build your Commoditization Map.
Choose your company’s most important product or service.
Break it into five to ten component activities.
For each component, identify:
- Is it already commoditized?
- Is AI likely to commoditize it soon?
- What does it currently cost us to deliver?
- What would it cost if we aggressively used AI or other technology?
- What value remains difficult to commoditize?
- What could we build around that remaining value?
Then ask one final question:
“If the most commoditized 50% of our offering became essentially free, what would we want customers to pay us for?”
Your answer may reveal the foundation of your next business model.
Do not defend the commodity. Use it as the foundation for the next layer of value.
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