Rodney has taught university accounting classes and has a doctorate in accounting.
This lesson will define homogeneous products and provide several examples. We will also explore the use of the term in different business-related disciplines.
What Is a Homogeneous Product?
A homogeneous product is one that cannot be distinguished from competing products from different suppliers. In other words, the product has essentially the same physical characteristics and quality as similar products from other suppliers. One product can easily be substituted for the other. To a buyer, this means that you cannot tell the difference between a product from ABC Company and one from XYZ Company.
When you are shopping for a product that happens to be homogeneous, that means all versions of the product serve exactly the same purpose, and you aren't likely to care which one you use. Therefore, if you were shopping to buy the 'best' product, the only difference would be price. The term is usually applied to agricultural products, and metal and energy-based commodities. For example, when you buy a bag of green apples, you likely don't know where they came from or who grew them, and you probably don't care. You base your selection on price alone.
In contrast, a heterogeneous product is a product that is readily distinguishable from competing products and cannot be easily substituted for one another. As a buyer, this means that you have to decide which features are the most important to you. For example, physical characteristics for similar items may vary between suppliers. This means that advertising, brand names, packaging, warranties and design elements, such as color, size and shape, would influence your decision. The actual prices are likely to vary significantly from one product to another because the suppliers are able to make their product seem different from the competition.
For example, to buyers, a Ford Mustang is easily distinguishable from a Chevrolet Camaro, even though both are cars and serve the same basic function. Such things as advertising, brand loyalty, image, and exterior style would factor into a buyer's decision. Price alone would probably not be the most important factor in the purchase decision.
Usage of the Term
Although the definition of a homogeneous product is the same in the various business disciplines, the applications and concerns surrounding the term are different. For example, in the discipline of economics, a homogeneous product is one of the characteristics used to describe a perfectly competitive market where consumers consider types of products to be identical. This, in turn, defines the nature of the relationships involving buyers and sellers in the market. In short, the term is used within the discussion of economic theory.
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In the field of accounting, however, homogeneous products are related to certain cost accounting and manufacturing procedures. Advertising and marketing people are more concerned with how to make a relatively homogeneous product appear different from competing products. The point is, of course, to increase sales and profits.
In all major ways, a homogeneous product is just like its competitors. One product can easily be substituted for the other. As a buyer, you would not care which product you used, and you would be most concerned with the price. Heterogeneous products are different from competing products and they are not interchangeable. As a buyer, you would select the product you wanted based upon the different features available. Price would be one of several considerations in making a purchase.
Overview of Related Terminology
Homogeneous products: those that cannot be distinguished from competing products
products that are distinguishable from competing products and cannot be easily substituted; differences and brands are easily spotted by consumers
it's hard to see differences even up close
in this field, a homogeneous product is one of the characteristics used to describe homogeneous products in a perfectly competitive market where consumers consider products to be identical
in the accounting field, homogeneous products are related to certain cost accounting and manufacturing procedures
these professionals are more concerned with making relatively homogeneous products appear different from competing products
After exploring this lesson, it could become easier for you to:
Contrast homogeneous products and heterogeneous products
Recall the ways in which professionals in various fields view homogeneous products
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