Tuesday, September 7, 1999

Will That Be Cash, Charge, or Brain Cells?


As far as I can tell, there are essentially three distinct ways for a company to make money -- design a better product, produce it at a lower cost, and get people to buy it. In the minds of the average "Joe Consumer," however, the distinctions among these three dimensions are muddy, and in many cases completely hidden.

Most of these "Joes," I sense, still buy into their great-grandparents' adage: "Build a better mousetrap and the world will beat a path to your door." The majority of these consumers would be quick to tack on "for a fair price" with only the slightest nudge. But I doubt many want to think much about the third dimension -- that is to admit that sometimes they are manipulated into buying a lesser product at a sub-optimal price. We all know it happens all the time, but we prefer not to think about it.

Business has always been structured along these lines: R&D, Operations, and Advertising. In the days when business was primarily engaged in meeting basic human needs, the first two -- product and value -- reigned supreme and advertising was tolerated as a necessary evil. These are the long-since-passed days of "use it up, wear it out, make it work, or do without." To think that the majority of folks in days past even felt a little "unclean" when faced with the possibility that they had acquired something that they didn't really need.

As the basic needs of most Americans, increasingly, were met, however, advertising began to gather momentum. Necessarily, this momentum came at the expense of "better product." If your goal is to improve a product that many consumers are not even convinced that they need in the first place, some of your optimization budget better be shifted towards advertising or your product efforts are not likely to bring a profit. Contrast the invention of the automobile with the addition of power locks.

Take another example, laundry detergent. We're all glad we have it and we're all glad it cleans better than it used to. But haven't we all gotten to the point where it's tough to tell whether or not we need the latest feature -- new scent, different-shape pour spout, bolder colors, etc.? And in a marketplace where it's tough to assign value to features, it's increasingly difficult to compare price. Let's face it, at some point we just buy what we know or what's on the shelf for a while. Who's got time to continually reassess value and price in the face of the endless ocean of "improvements" that washes over us, wave after wave? Is it any wonder that advertising reigns supreme at most consumer products companies, treating R&D and Operations like the vestigial appendages that they have become?

In fact, in most consumer products companies, the transition is complete. Product and value have become the necessary evil; marketing runs the show. Sure, these companies pay product developers and work to control costs, but when tough budget decisions get made, there is little mystery about which departments are "overhead."

Now, on the horizon, comes the sign of the business apocalypse -- computers that are given away for free, in exchange for the consumer's commitment to view advertising. With a minimum of reflection, this concept takes on staggering proportions! A marketplace transaction is being made between a computer, a tangible product, and a measure of control over a person's attention! Could you imagine trying to explain to a 19th century farmer that control of his mind would someday contribute to the GNP?! The concept that one's laundry detergent purchase may someday be at least partially dependent on which computer one decides to "purchase" is truly bizarre, isn't it?

Does this suggest that it is only a matter of time before price and value are completely marginalized and the overwhelming majority of Americans begin competing for control of each other's minds as a way of life? And if this isn't a weird enough scenario, consider this -- the majority of the world's population still doesn't have a reliable food supply and decent medical care! I realize that this final statement, on a financial website, puts me at risk of being labeled a "tree-hugger," but, hey, it's bizarre, ain't it? And some folks still think the Internet is a fad.

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