Marketing is the art and science of creating change (disequilibrium) in markets in such a way that the change benefits the firm and consequently comparatively disadvantages rivals. If a market is in equilibrium, marketers are not doing their job (Dickson 1996, p.102).
Disruptors such as Amazon exemplify Dickson’s advice to create and understand change in markets. But you don’t need big data to do so – publicly and ethically available information on competitive prices, product attributes and sales will do the trick.
Strategy rockstar Rick D’Aveni (author of ‘Hypercompetition’) and I team up to explain and demonstrate the formation, evolution and replacement of price–quality relationships (FormationEvolutionAndReplacementofPriceQualityTradeoffs). Using easily available data, we establish the primary quality dimension and its relation to price in fair value lines across industries such as automobile, sweeteners and electronics. The insight comes from doing so at different times and comparing trends in how this fair value line changes in your industry, of which the following spell trouble:
- Flattening of the line: customers are less willing to pay for the primary quality dimension, as happened in the 1990s market for pickup trucks
- Blurring of the line: the primary quality dimension explains less in market prices
- Replacing of the line: Another quality dimension becomes the primary one, as happened for small cars from Platforms to Consumer Report Endorsements to Antilock brakes.
What we often observe is a ‘race to the bottom’ where new generations offer better quality at a lower price. Apple did so successfully for its own iPod in the early 2000s:
But we see it among competitors in today’s environment of online algorithms recommending your products to consumers: “the algorithms do work – to a point. They do find people who are in the market for certain types of products and they dynamically generate adverts that use all the right clickbait-style buzzwords to attract attention and generate clicks. But unless I’m in the mood to buy right there and then, all they can achieve is a desire for a product that any old brand can then take advantage of. The algorithm is essentially commoditizing every single product out there, ensuring that the only differentiator becomes price. Once that happens to your category, it becomes a race to the bottom: