Markets’ Fragmentations is a Natural Proces

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“.