Demand and supply: how communities reshape the market
“We live in age where consumers are uber-connected and, for the first time really, have the tools with which to combine their demand and broadcast it at the supply side of markets,” says Richard Bates from Consumer Focus.
As part of our research into group buying trends, Canvas8 chatted with Richard to get his views on how consumers are increasingly working as a collective to affect changes in the marketplace. Here’s a little snippet:
C8: How do you foresee collective buying changing the nature of competition?
RB: It’s not about changing the nature of competition. It is about reviving the competitive impetus in markets where it has stalled.
Economics 101 assumes that rational consumers, acting in isolation, will continually seek out and migrate towards providers who offer a better deal. In doing so, they’ll create and exert the competitive pressures that keep prices in check, drive up service levels and give rise to innovation.
That might be how things play out in markets where it’s easy to identify a better deal and where moving between providers is pain free. But it’s far from the case in ‘confusopoly’ markets such as energy, telecoms and financial services, where finding a better can feel like panning for gold: it’s difficult to know where to start, it can be time consuming, hard work and the chances of it paying off are slim.
The upshot is consumer inertia, which has spread glacier-like through these markets. Competition between providers has given way to complacency and the benefits that should flow to consumers have diminished. New entrants who ought to come in and challenge the status quo are frozen out.
Group switching has the potential to generate a much stronger competitive impetus than the orthodox ‘go it alone’ approach. The prospect of winning a significant block of market share (or losing a proportion of their current customer base) galvanises providers to compete for the group’s custom. The opportunity for instant acquisition of market share better enables new providers to challenge the grip that a small number of incumbents currently enjoy.
Crucially, it doesn’t depend on weighing consumers down with the hassle of self-organising as a ‘collective’. A new breed of intermediary is emerging in this space, which harnesses the power of social technologies to create the context within which people who align with the group’s objectives can be effective in aggregate – through the power of their numbers –while remaining largely passive in practice.
The intermediary shifts the onus for market engagement from the many consumers who would welcome a better deal, to the few providers who seek their custom. It creates a much more demanding demand side, yet requires much less of it. This promise of better outcomes in return for much less effort will, I believe, ensure this approach has significant consumer appeal.
There are benefits for providers too. It offers a markedly more efficient acquisition model, eroding the need for conventional sales and marketing spend. Again, factors that will be especially attractive to small providers and new entrants.
C8: Looking forward - how do you anticipate that the group buying trend will evolve over the next few years?
RB: We live in age where consumers are uber-connected and, for the first time really, have the tools with which to combine their demand and broadcast it at the supply side of markets. That’s fertile ground in which a whole range of approaches to group buying are going to grow. In many ways we’re just getting started, but I’ll pick out a few examples to watch.
In complex utility-type markets, we’re going to see increasing numbers of people using group switching intermediary platforms to cut through the confusion and get a better deal.
Look out for instances of consumer-led DIY group buying too, where motivated individuals challenge a provider to offer a good or service at a price or in a form that is currently unavailable. The provider would respond with an offer, which would be made available on the basis that a sales threshold is met. Using their social networks to highlight the offer, the individual would then create a network effect that brings enough of their peers to the table to secure the deal. I expect to see this wherever groups develop around shared niche interests, or where there are needs that currently go unmet by a market - specialist products, alternative travel destinations and products and services relating to distinct health needs, for example.
We’ll also start to see companies provide group buy opportunities direct to consumers, rather than via daily deals behemoths. This will especially be the case as tools become available that enable smaller, local providers to offer group buys in ways that mean they can better manage the demand it generates.
Any sector where aggregated demand will mean consumers have enough clout to bypass retailers and unlock access to wholesale markets and rates, is wide open to disruption by intermediaries that can combine and coordinate consumer activity.
A final point worth noting is that, in most instances, solidarity isn’t the big draw for consumers here. The benefits might be collective, but it’s the self interested prospect of a better deal for less effort that will draw people towards group buy initiatives. What’s more, in some instances consumers will enjoy the benefit, but won’t necessarily be aware it’s the result of a group buy exercise. In some instances the aggregation and leveraging of participant demand will all be taking place under the bonnet.
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And Canvas8: Demand and supply: how communities reshape the market