Commercialization

Article byGeorgina Tzanetos, MA
Reviewed byDheeraj Vaidya, CFA, FRM

Commercialization Meaning

Commercialization is the process of transforming a new product or service all the way from conceptualization to actual sale. In other words, a product is created and brought to the market for profit. The commercialization process follows several stages that start with research and end with a product’s marketing.

Commercialization is a term that is frequently used when something is brought to the mass market or moved from the public to the private sector. However, the term also refers to a situation where technology has been transformed into usable products now consumed by individuals.

Key Takeaways

  • Commercialization is the process of bringing a product or idea to market for financial profit.
  • Commercialization can refer to scientific innovations, retail products, or new ways to utilize farmland.
  • When commercializing a product, it is important to time the release of a product or idea correctly so as to maximize profits.

How Does Commercialization Work?

Commercialization has a significant role in sustaining the economyEconomyAn economy comprises individuals, commercial entities, and the government involved in the production, distribution, exchange, and consumption of products and services in a society.read more of a country. A great example in the case of healthcare in the U.S. Healthcare commercialization is a common issue in the United States, as private entities largely run healthcare for financial gain instead of it being provided by the federal government.

Where a laboratory might have been using bleach, let’s say for industrial purposes, they can commercialize it for widespread household use. 

The commercialization process differs depending on the type of product brought to market. But the process follows a similar path. The methodology of transforming a technological innovation into a commercial product or service typically follows these steps:

  • Ideation and research 
  • Development 
  • Marketing and Sales

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Process

All products, services, and innovations first begin as ideas. While both lines of commercialization more or less include the creation of an idea and bringing them to market, a scientific product requires more discovery work upfront. When taking an innovation or scientific product to market, the creators have to perform proper research and developmentResearch And DevelopmentResearch and Development is an actual pre-planned investigation to gain new scientific or technical knowledge that can be converted into a scheme or formulation for manufacturing/supply/trading, resulting in a business advantage.read more on the front end. The process then follows prospecting, licensing, and finally, test marketing. Successful commercialization requires all the stages completed in order.

Commercialization Process

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Technological Commercialization

Technological commercialization refers to the transfer of technology from the lab to the market. For example, suppose a manufacturer has proposed a new drug for diabetes. Extensive research and modifications take place even before the consideration of a business model.

Steps involved

Technological commercialization usually follows these steps: 

  • Disclosure of innovation

Disclosing a completed idea is the first step towards peer review. It formally brings forth the idea for evaluation.

  • Assessment by other researchers

Licensing officers will evaluate the idea or product to assess its marketability, patentability, and the scope of the available market.

  • Patents

A manufacturer has to apply for patents well before they can bring the innovation to the market. This ensures a tighter scope of influence from other innovators and a better chance of successfully commercializing the product or idea.

  • Appropriate licensing  

Along with patents, commercializing a technology requires appropriate licenses. In addition, the manufacturers need to fulfill intellectual property requirements, government agency licensing, and federal clearance (in the case of new pharmaceutical drugs, machinery, etc.)

  • Discovering target customers

During licensing, the licensing officer often shops around the idea to other companies to gauge the interest of target audience. The manufacturer can also apply for provisional patent licenses during this stage if not done before. They do this to check the market interest in a product before paying for a full patent.

  • Business model

Inventors need to justify to investors the viability of commercializing a product. They do this through a business model, which shows plans for all funds and processes involved in bringing the product to market.

  • Bringing it to market

Once a business model completes its review, the final step is bringing the product to the mass market for purchase. This usually includes sales and distribution.

Investment

Scientific commercialization requires an incredible amount of capital even before the investor can begin to verify that a product will be successful. Notably, though, the profit margin is tremendous. For this reason, biotechnology has seen a surge of investors in the last decade or so. 

Large investment banks have the capital needed to fund research and development in scientific areas where returns can be long-lasting. For example, in healthcare commercialization, consumers will use and purchase a new diabetes medicine for years to come.

Product Commercialization

Product commercialization follows a similar path with minor tweaks. The market is quite different for a retail product than it is for technology.

Fickle-minded consumers and ever-changing economic tides make the demand a moving target. For this reason, unlike scientific commercialization, market researchMarket ResearchMarket research refers to a business strategy wherein an organization analyzes the market trends, competition, and consumer preferences ahead of launching new products or services. It involves collecting and interpreting data during product development or marketing to help businesses make informed decisions. read more is one of the first priorities in product commercialization.

Since the commercialization of a product, regardless of type, requires a great deal of money, the customer’s willingness to purchase is the most important driving force. 

Commercialization of Agriculture

In the commercialization of agriculture, the cultivation of crops is largely navigated by commercial demands. The farmers have to rely on market demand for production rather than other factors. The commercialization of agriculture includes the slow replacement of traditional farming systems by technological advancements and enterprises. In short, machines have replaced farmers, laborers, and agricultural processes. 

An example of this is the large machines that are used to collect and sort onions. There are many different types of onions that were used to be sorted out by hand. These jobs are now replaced by a machine that completes the work at a far faster rate and efficient pace. 

There are countless examples of agricultural commercialization that we are used to seeing in our daily lives. Common examples are:

  • Tractor-trailers that till the soil
  • Fertilizer planes
  • Industrial grass mowers
  • Grain mills

Implications 

Agricultural commercialization is an immensely controversial and political issue in countries throughout the world. In the United States, one would be hard-pressed to find someone who has not heard the arguments against farming enterprise reducing American jobs. 

Much of the U.S. is also farmland, and the process of farming is embedded within the culture. 

Since there is such abundance and quality of arable land in the country, it has been ripe for an industrial overhaul. The United States exports tremendous quantities of grain and other commoditiesCommoditiesA commodity refers to a good convertible into another product or service of more value through trade and commerce activities. It serves as an input or raw material for the manufacturing and production units.read more to countries all over the world.

This dichotomy surrounding the overall effects of agricultural commercialization is large and complex. While it has pushed out low-skilled laborers with relatively limited options for work elsewhere, it has also benefitted people domestically and abroad.

What is a Commercialization strategy?

A commercialization strategy refers to the series of financing options a company considers to move its technology/product from conceptualization to market. 

Licensing is of particular importance during this phase. Should someone wants to remain a research and development firm, for example, they might be able to forego the financial costsFinancial CostsFinancing costs refer to interest payments and other expenses incurred by the company for the operations and working management. An enterprise often borrows money from different financing sources to run their operations in return for interest payments and capital gains.read more of licenses. On the other hand, should the goal be full commercialization of a product, licensing, patents, etc., the appropriate agencies need to be taken into account. These plans shape the foundation of a commercialization strategy.

One of the most important factors for commercialization strategy is the window of financial opportunity. 

Why Is It Important?

Investment banks closely monitor the availability of a product in relation to top competitors and the timing of the market, especially in the case of high-value investments. This is because a highly profitable product with the correct positioning for success can fail if not timed correctly.

It is also important to consider customer timing in a commercialization strategy. Suppose the idea is to launch a more economically friendly way to light Christmas trees. This would bring more excitement to a customer base if released in November rather than in April.

Frequently Asked Questions (FAQs)

What does commercialization mean?

Commercialization is the process of bringing an idea, product, or service to the mass market and making monetary benefits from it. Its process follows a chain of steps namely idea generation, research, development, licensing, marketing, and monitoring.

What is the commercialization of agriculture?

Commercialization of agriculture refers to the production of crops for satisfying market needs rather than focusing on the surplus of a crop. It is characterized by replacing traditional agricultural methods with the latest technological inventions.

Why is commercialization important?

Commercialization plays a huge part in deciding the role of an idea, product, or service in society. It generates job opportunities, creates choices for consumers, and paves the way for more market needs. It affects a nation’s economy and sustains the quality of life standards. It also demands the learning and propagation of new skill sets, knowledge, and innovations.

This has been a guide to Commercialization and its meaning. Here we explain how the commercialization process works along with examples of technology, product and agriculture. You can learn more from the following articles –