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Thursday, 5 December 2019

Competition

In my village, there is 1 compact supermarket. Some people complain about their higher prices. They visit bigger and cheaper supermarkets in nearby villages or towns. In my view, having a supermarket in a village is a prerogative. Moreover, using my car for grocery shopping would probably wipe out my savings, and I would also lose the advantage of my (biking) exercise.

In school, we learned that market monopolies are bad for customer pricing and service. Still, things could be worse in case of state-run monopolies (eg, bus, electricity, gas, train, water). The second worst option were oligopolies. Much better was monopolistic competition (eg, the only supermarket in a village). The best option was perfect competition, a free market with multiple suppliers.

In reality, the concept of perfect competition is an illusion on whatever scale (ie, local, regional, national, global). Still, customers feel that the existing - though limited - competition amongst suppliers is perfect to them. In my view, technology has created transparency, which is necessary for mirroring the essence of perfect competition.

The use of advanced technology requires economies of scale in order to be able to continue offering favourable pricing to customers. Hence, such companies must become market leaders, as early and as quickly as possible (eg, Big Tech). There is little to no room for new or late market entrants, once the market has been captured by several (max. 4-5) main suppliers.

In school, we learned that oligopolies would dictate prices and service to their customers. Today's oligopolies do not have that luxury. Any error regarding pricing and/or service can cause a customer stampede, following the Internet's transparency. The size of oligopolies might be fixed but their composition is fluid: members come and go, depending on pricing and customer service.

It's tempting to argue that technology, which created Big Tech, has become its main threat. Big Tech's global ambitions have only weakened their market position. A global customer stampede would probably cause a bankruptcy. Hence, customer loyalty and brand identity are required for preventing customer brand switches, and also for justifying premium prices.

The above is also an example of dualism versus trialism. In today's age, global consumers have both the (potential) knowledge and power to make or break companies (eg, Nokia). Without the customer’s love, however, the balance in dualism is always shifting. A (symmetric) triangle of Love-Knowledge-Power provides a long-lasting balance. Apple seems aware of this.

“Some people say, "Give the customers what they want." But that's not my approach. Our job is to figure out what they're going to want before they do. I think Henry Ford once said, "If I'd asked customers what they wanted, they would have told me, 'A faster horse!'" People don't know what they want until you show it to them. That's why I never rely on market research. Our task is to read things that are not yet on the page.” A quote by Steve Jobs (1955-2011).

Powerful People (1974) by Gino Vannelli


Note: all markings (bolditalicunderlining) by LO unless stated otherwise

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