In a previous article, I was talking about optimum price and segmentation to augment profit. You can read that here.
Sure, one can create different versions of a product to segment the customers and set an optimal price for each segment. But one cannot control the competition. This means that in a market where other companies are offering the same kind of services, the prices one sets need to take into account the competition. In some cases, it is even more subtle than that.
Lacoste and the Chinese counterfeiters
The French sportswear brand “Lacoste” has a high manufacturing quality, which made them a highly-regarded brand. They are also very expensive, therefore not that many people can afford them. The big money attracted the Chinese counterfeiters, who started making fake Lacoste polo-shirts. As a result, Lacoste is now the most counterfeited brand in the world. The buyers of these counterfeit polos know most of the time that they are not buying real Lacoste polo shirts and they also know the quality is not the same. But as they pay less money, they are happy with it. The counterfeiters just created a segment, right under the nose of Lacoste. Maybe the French brand should take example on what Sony did with the CD burners.
Sony and the CD-burners
In the early days of the CD burners, back when a single blank CD was selling at around $15-20 (yep, a long time ago!), I personally did not understand why Sony was openly selling CD burners and blank CDs. I mean, this technology was enabling people to copy music CDs and Playstation games which were two important businesses of Sony at the time. I could not understand why would someone want to hurt its own business. But then it hit me: the technology is ready, so someone will sell it whatever happens. If you are in any CD-based business, then this technology will hurt your business and somebody will make money with it. Now, you can let this someone take the money, or you can be that someone and take the money. Since the counterfeiting segment will be created whatever happens, why not simply owning it!
Be the competition
It is very common to see an indoor restaurant with a KFC and a Pizza Hut altogether. So now that you are in there, you have to choose to which of these two restaurants you will give your money. What is awesome about this, is that both of them are owned by the same company called Yum!. They own the choice pool, and therefore they own your money even before you make a choice. Okay, they are both part of the junk food chain restaurant segment, but still, owning the choice pool at a specific location is a pretty smart move. They do not care about competition because they own it. The same thing goes with laundry powder. Three main corporations own the market: Procter & Gamble, Unilever, and Henkel. Each corporation has multiple brands that appear to be different on the shelves of the supermarkets. So you think there are 10-15 different brands, when the money actually goes in the pocket of just those three guys. Sure, there are some “indie” laundry powder makers out there, but their share of the market is very probably insignificant.
So there you go. Even better than segmenting a service or a product, the sure way to win is to be the competition. Of course, monopoly is illegal in many countries, but that is a different story.
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