Fri, 12 Nov 2004

Markets’ Fragmentations is a Natural Proces

Yesterday’s article “U.S. Jewelry Market Becoming More Fragmented” reminded me about The Cluetrain Manifesto where Chris Locke had followed the markets’ fragmentations based on automobile industry.

At the beginning consumers “can have any color they want as long as it’s black.”

Then “General
Motors broke Ford’s run on the Model-T … by offering cars that were
not black, and even came in different styles to suit different tastes
and pocketbooks
.”

Then “With the oil embargo of the
early 1970s, small, fuel-efficient cars began looking highly attractive
to people stalled in long gas lines. Companies like Honda, Toyota, and
Volkswagen exploded into the North American market like a tsunami… In
a classic reversal, what was suddenly good for America was anything but
good for General Motors. The auto industry didn’t see these changes
coming, and as a result lost enormous market share to offshore
competitors.

Overnight, global competition turned mass
markets into thousands of micro markets. Nike now makes hundreds of
different styles of shoes. The Wall Street Journal coined the term
sneakerization to describe a phenomenon affecting nearly every
industry.

Competition is healthy, we’d been told from
birth, because it breeds greater choice. But now competition was out of
control and old-guard notions of brand allegiance evaporated like mist
in the rising-sun onslaught from Japan, Southeast Asia, and Europe.
Choice and quality ruled the day, and consumer enthusiasm for the
resulting array of new product options forever undermined the
foundations of yesterday’s mass-market economy
.”

Then came the Internet.

Just
as GM mistook the Hondas and VWs for a passing fad, most corporations
today are totally misreading this invasion from Webspace. Their brand
will save them. Right. Their advertising budget will save them. Uh-huh.
More bandwidth will save them. Sure. Well,…something will save them.
They’re just not too sure what it is yet. But the clock is now ticking
in Internet time. Maybe they should get a clue. And quick
.”

This
was written over 5 years ago and some companies in more dynamic
industries (electronics, software, etc) started to adjust to the
realities.

Diamond and jewelry industry was (and still is) scared
about the internet because of fear of the price competition. Our
observation shows that price is not the #1 or even the #2 factor.
Simple estimation of the diamonds sold on- and off-line shows that the
majority of consumers are still buying from local brick and mortar
stores.

Fragmentation of the markets is a natural process.
Therefore, in order to survive, companies should find their own markets
or niches and to be good at it.

A customer who wants to buy a
diamond now wants to be able to choose their own “fries” or something
else “on the side”: level of education, sales techniques, ethical
standards, etc. Some will be comfortable with buying on the web; some
will research diamonds on the web but prefer buying locally. Some will
buy the cheapest ring in Wal-Mart while others will think they are
getting a romantic experience in an upscale shop.

The most
important thing in this reality is to listen and talk to your
customers. Argument “I’ve been in this business for 25 years” may not
work as well anymore.

As M. Rapaport said, “If an educated customer is your nightmare, go out of business. Customers won’t get less educated“.

Article Series
This article is part 1 of a 2 part series. Other articles in this series are shown below:

  1. Markets’ Fragmentations is a Natural Proces
  2. Understanding the Internet