Your customers’ smartphones are “data-creating and transmitting” machines, Alex Moazed and Nicholas L Johnson note in their book Modern Monopolies. And this will change how you do business.
Last century, they argue, there was a battle between central planning of economies and decentralised economies ruled by market activity.
The Soviet Union versus the USA, for example.
The market economy won because central planners simply could not get enough information and the information that they had was not perfect. Local knowledge could always beat the centre because the man on the spot had a better idea of what was going on.
In the world of Uber and Just Eat and Amazon, price is not going to save your business
The best way of bringing this local knowledge to bear was through pricing. Price became the key performance indicator. The market would aggregate all the individual pricing decisions and adjust to it in real time. As markets developed, people would gain a better understanding of what the correct price should be.
In retail, this helped the supermarkets to grow and grow as they efficiently built scale and promoted low prices on key products. The shopper had access to quality products, new ideas and the satisfaction of knowing they were getting a fair price.
Many independent retailers built successful businesses by exploiting pricing differentials, spotting local producers of quality essentials at prices the supermarkets could not match, for example.
Last week I walked past three stores on a 100ft stretch of inner London pavement and all three had wide open doors, good lighting and the same big brands on display with one member of staff staring out. Their key promotional drivers were low prices on, for example, bottles of water.
The problem with using price as a differentiator is not everyone can be cheapest. Retail expert John Stanley, writing from Eastern Europe this week, notes that “in the drive to become cheapest, many retailers have lost touch with the basics of retailing.”
He describes his relief at finding a candy store in Prague where the retailer did not promote on price but with his “bestseller” product and with something “new”. This was the busiest store on a street where the other candy stores were competing on price.
In Modern Monopolies the authors note that when the industrial revolution started, factories were powered by steam and water and had to be built by rivers.
However, once electricity became widely available it took a long time for factory owners to realise they did not have to build by rivers any more. “The full potential of electricity had not yet sunk in.”
The platform economy is driven by the smartphone. The smartphone means that centralised planning now has the advantage of vast amounts of information and pricing has lost its advantage. Social networks and similar platforms are changing the economy faster than you think.
In the world of Uber and Just Eat and Amazon, price is not going to save your business. Instead you need to tell your shoppers a great story about what sells in your shop and what is new that they will like.
Most stores need to avoid leading on price.
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