The Rubik’s Cube Marketplace
By Gil Gerretsen
The conventional wisdom has long held that capitalistic marketplaces are a "melting pot" where people from all economic and ethnic backgrounds had similar interests and aspirations. Traditionally, businesses had comparable access and could successfully sell their goods in local, regional, or national venues of their choice. This is quickly becoming a myth and has huge consequences for businesses in the coming decades.
With the march of technology that can now transmit messages in an instant and fuel social bonds across large distances, the traditional capitalistic markets are moving away from being an open and egalitarian place. Rather, they are quickly shifting towards a Rubik's Cube patchwork of horizontal and vertical special interest groups.
Increasingly, capitalistic marketplaces are forming a myriad of new and diverse special interest groups between people of similar hobbies, values, class, social mobility, ethnicity, power, education, income, wealth, occupation etc. and, in the process, forming walls and barriers to keep others out. Much like a bee hive is a frenzy of activity within its walls, those on the outside have little awareness or understanding of those activities. In fact, from the outside, the group may be hardly visible.
The first notable shift as we move towards this new frontier is that we're seeing a more networked and decentralized world overall. In the process, human differences are becoming more accentuated rather than suppressed or eliminated. As people are able to find increasing numbers of like-minded people, they begin walling themselves off from others who don't share their interests or mindset.
As a result, power (the right to make effective decisions on behalf of a group of people) is increasingly held by a small confraternity of elites. These new influencers establish significant protective barriers to "outsiders" and have enormous impact on what their community values and purchases. They also have a great impact on which businesses are allowed into the community to serve their members.
For much of history, most businesses used micro-marketing strategies to establish, target, and expand their client base within a specified geographical region. As marketplaces expanded, marketing segmentation strategies allowed businesses to consider and leverage specific attributes that set them apart from other competitors. They targeted groups of individuals based on specific information that had been collected about their specific needs, likes, and dislikes.
In this way, matching consumers with the product being offered becomes a lot easier. Effective use of information about their audience allowed companies to position themselves as micro-heroes and achieve unique micro-monopolies through economies of scale. As their capabilities and market distinction increased, they were able to force other potential competitors to specialize in a different way. Now, as new special interest groups reorganize the marketplace, the opportunity for a new generation of replacement micro-heroes is quickly emerging.
In a world where borders and distances no longer pose prohibitively expensive obstacles to competition, deepened specialization can provide an increasingly effective hedge against competitive forces. Businesses of all sizes can now take the principle of specialization to the next level.
Such extreme specialization allows (perhaps requires) businesses to embrace globalization. As the locality and size of domestic markets are insufficient to sustain the business, they will need to sell globally to forge an adequate customer network. This emerging trend will amplify the reduction of direct competition and pricing pressure. Although micro-monopolies will have smaller audiences, their profits can increase.
For businesses that have targeted broad horizontal or vertical markets, these emerging trends mean that you'll need to start thinking differently. Your product, your services, and your business won’t be for everybody. If your business has been casting a wide net by making products or services that could appeal to almost anyone, you'll have a significant pool of potential customers but few specific ways to reach them. If your products or services appeal to a narrow audience, you'll have a smaller customer base but each potential customer will be more likely to want your offerings.
As this realignment of business verticals and horizontals continues to develop, the effects of uber-specialization will start a market-slicing wave. This means that businesses will need to deploy both vertical and horizontal mindsets, creating the Rubik's Cube phenomenon. Business will tend to be small, more focused, leaner, and extremely responsive.
Decline of Big Business
As the Rubik's Cube phenomenon continues to emerge, consumers will start feeling a sense of disconnect and disdain for the larger companies, who because of their bureaucratic size, cannot be as sympathetic and responsive to their needs and desires. Many large companies will start to decline or split into smaller pieces.
However, there will be some who survive and prosper because they will have one unmatched capability - economy of scale. Larger companies are able to produce and sell greater quantities by spreading the cost of production over a larger amount of goods. Those economies of scale and price advantages can then be passed on to the consumer. In most instances, these will be providers of products or services perceived as commodities (where the end result received from one provider is functionally no different than another).
How To Respond and Prosper
The key factor for a successful Rubik's Cube strategy is operational excellence. You cannot afford to rely solely on your marketing prowess. In order to remain competitive, you'll need to continually invest in state-of-the-art improvements sought by your micro-market, while ensuring that your delivery costs remain efficient and flexible. If you’ve invented something new, but you haven’t invented an effective way to sell and deliver it, you have a bad business, no matter how good you think your idea may be!
To attain presence and dominance, the key step is to identify a micro-market where your business can be a micro-hero by providing a leading role through uber-specialization. This is especially important if your business is facing increasing competition from companies who threaten to match, or even exceed your product quality with a lower cost structure.
While every entrepreneur is fully convinced that their solution to a problem is unique, the market does not care what you think. The market needs to be convinced that your specialized solution really is different and better for their situation and community. Know where you are different and push to widen the perceived gap between you and the others.