Posted on November 17, 2015 by David Yovich
It is a phenomenon in the marketplace where all consumers have access to the same product or service information at the same time, where little to no product differentiation exists, and where no one company or product (or service) dominates the market.
We learned quickly that the concept of perfect competition was introduced to aid us in understanding or describing how commodity markets function. In other words, perfect competition is analogous to the competitive landscape in which commodities are introduced, priced, bought and sold.
Last week Wal-Mart Stores, Inc. (NYSE: WMT) guided a surprisingly weak profit forecast for 2015 and 2016 as the “world’s biggest retailer by revenue spends heavily to increase wages, improve its cavernous stores and boost online sales.” It was also reported that Albertsons delayed a planned IPO (Initial Public Offering) based largely upon Wal-Mart’s current challenges in the consumer packaged goods (CPG) marketplace. Given the struggles by Wal-Mart and other chains in the sector, one very interesting data point is that Amazon (the on-line retailing behemoth) is cited as the main target for competition. The question is are consumers really switching their buying habits on-line due to convenience, or does Amazon simply give customers the ability to shop across multiple companies, brands, platforms and through the “perfect” flow of information, instantaneously uncover the best deal?
I find it strange that other than continually noting consumers’ switch to and affection for on-line commerce that everyone seems to be ignoring the elephant in the room – how technology is ushering in a new era of perfect competition. Despite a slow but forward moving U.S. economy, we’ve had a near six-year run of benign inflation numbers, and in fact September’s CPI (Consumer Price Index) number fell by 0.2%, representing the second straight monthly decline for the index. Perhaps with the exception of the health care sector, companies have found it quite difficult since the Great Recession to exert any lasting or sticky pricing power over consumers.
In many ways it’s easy to cite a strong dollar and slowing economies in Europe and China (the world’s 2nd largest economy) as the culprits for the blunders and difficulties companies are experiencing, but I propose that what we’re encountering, particularly in North America, is the wholesale commoditization of products and services. Consumers wielding smart phones have access to instantaneous and comprehensive information about nearly any product or service at any point in time. This information includes price, quality, performance, user/customer reviews, etc. While many of us have effortlessly scanned a bar code of a product in a store to seek out coupons, specials, or even a better price on-line or in another store.
Armed with “perfect information”, consumers have far more choice than ever before, and with this information they wield an incredible amount of power over companies and service providers.
So if you are accepting of this idea that we’ve entered an age of perfect competition or commoditization, how can you position your company or your brand to effectively and profitably compete? How can you seemingly differentiate your company, brand or service to ensure and sustain pricing power?
Certainly, one key to all of this is recognizing that communication, and ease of access to information is constant and free-flowing. Companies and brands should make sure that key product or service benefits are in fact key to consumers’ perceived value, and that they are well and consistently communicated in all forms of messaging.
Leverage the free flow of information to analyze and understand consumer purchase behavior, and more importantly to consistently and regularly communicate to current and potential customers. Fully engage new media opportunities to meet consumers where they gather…in the mobile marketplace. Social media, in-app advertising and precision geo-targeting are all powerful tools to employ in your marketing mix in this new era of perfect competition, and can help defend against your company, brand, product or service from entering the commodity space.
1 Nassauer, Sarah – Wal-Mart Surprises Market with Dim Outlook, Wall Street Journal, October 15, 2015
2 Harrison, David - U.S. Consumer Prices Fall, Clouding Fed Rate Decision, Wall Street Journal, October 15, 2015