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The Atlantic, Marc De Swaan Arons
“There was a time, going back at least 70 years,
when all it took to be successful in business was to make a product of good
quality. If you offered good coffee, whiskey or beer, people would come to your
shop and buy it. And as long as you made sure that your product quality was
superior to the competition, you were pretty much set… The shift from simple
products to brands has not been sudden or inevitable. You could argue that it
grew out of the standardization of quality products for consumers in the middle
of the 20th century, which required companies to find a new way to
differentiate themselves from their competitors……….
These brands created value by lowering “search
costs” for consumers. Search costs are the costs incurred by
a prospective buyer in trying to determine what to buy. In the case of a
consumer packaged good like canned food, toothpaste, or laundry detergent, the
search cost for consumers is the cost of trying to determine the quality of the
product and weighing this against price differentials prior to purchase. By
eliminating this cost for the consumer, companies with a successful brand were
able to charge more for their products, even while providing an improved
cost/benefit offering to the consumer. The consumer could pay more for their
products, because doing so reduced the search costs they were otherwise
incurring…………………
But what if a new
way of reducing search costs is developed? What happens to the value of these
brands?
An alternate way to
reduce search costs is for the distributor rather than the product manufacturer
to play this role. The success of Costco is in large part built on the idea
that any product sold in their stores is of high quality and is a good value.
Costco leverages their scale to identify high quality, good value products and
deliver them to consumers
But now the internet allows for the reduction of search costs on a
global scale………………….. draining value from the Coke, Gillette and Yellow
Cab brands because in each case, the online distribution of information
radically reduced search costs for consumers.
Of course some brands will resist. luxury and non commoditized products.
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