March 2, 2005

cheapest or best

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My old high-school buddy, Hamish, is a high-end SAP consultant, specialising in financial software. He is also smarter, funnier and a better writer than me. Here's his latest offering:

Other than that, the people who give you money, are customers. They have no obligation of any kind to continue to give you money. If something better comes along then your ass is toast. Now, I agree that some classes of relationship are not going to change as easily as others. Would you bother to change your utilities supplier, if you could? Would you buy different brands of clothes? Would you like to eat different food every day? But if all you have is inertia to protect you, then you will find that one day the numbers on the marketing spreadsheet do not come out right, and your job is gone. The world moved on, and forgot to buy the right number of units for you to make your forecast. You have no automatic right to revenue. None. (OK, OK, US Military Contractors, but let's stay in the real world...)
In the comment section I pipe in:
If I was 20 years younger and going to college, would I, like our peers did back in the 1980s, be studying "media" or advertising? Considering film school, law school or an MBA program? Would I hell.

First, I would save my parents serious cash by opting out of university, and attending instead a good local technical college. Then I'd spend a year after that, maybe going to night school studying English, English Lit and creative writing.

Upon finishing my studies I'd hang up my shingle as a high-end plumber in an affluent part of the world, like Conneticutt, Austin or Santa Barbara.

And I'd immediately turn my recently acquired English-language skills to writing a witty and informative blog about plumbing. And wait for the phone to start ringing off the hook after an initial start-up lull of... what? 12, maybe 13 mintues?

Hamish and I have been talking about how the world is changing for years, long before either of us discovered the web.

We are now moving into a world where you have two basic survival choices:

1. You can be the cheapest.

2. You can be the best.

There is no middle option.

Cheapest or best- theoretically there's nothing wrong with that equation.

But we live in a world where most of us don't want to be either.

Posted by hugh macleod at March 2, 2005 3:35 PM | TrackBack
Comments

"....Then I'd spend a year after that, maybe going to night school studying English,......"

That's good - because then you would learn how to correctly spell Santa Barbara.


Posted by: K. A. Adams at March 2, 2005 4:43 PM

Theoretically, it seems to me like you can survive if no one is both better and cheaper than you. That's why, for example, Microsoft can survive. People look at Linux and say, "That's cheap, but Windows is better." And they look at Apple and say, "That's better, but it sure is expensive."

Mathematically, it's called a dominance relation.

Posted by: chris at March 2, 2005 4:47 PM

Damn. You're right. Fixed it. Thanks for spotting it =)

Posted by: hugh macleod at March 2, 2005 4:50 PM

Fair enough, Chris, and there are other factors beyond objective quality and price:

http://www.gapingvoid.com/Moveable_Type/archives/001009.html

Posted by: hugh macleod at March 2, 2005 4:56 PM

That's just what I was going to say.... this equation does square with your reification of microsoft, which is never the cheapest nor the best, but certainly the most successful overall.

The equation suggests we are all heading towards being Walmart or Bang & Olufson - not sure that's true.

Posted by: Lee Bryant at March 2, 2005 5:03 PM

I wouldn't say that's true, either, Lee... not the way you interpreted it.

Certainly in the market I operate in, holding the middle ground is getting more and more untenable, or at least, harder and harder...

Posted by: hugh macleod at March 2, 2005 5:11 PM

cheapest, I suppose, is doable. It's the best part that sounds daunting.

Posted by: Lainie at March 2, 2005 5:41 PM

Hi Hugh

Thanks for the mention.

I think that the final difference between the best and cheapest, is the fact that the information in the market is not perfect, which you wrote about before coming out of one of our other conversations, the ignorance premium.

The fact that not everyone has the same information or perception about what is cheapest or best is what prevents the absolute polarisation of the market. That, and the fact that the market is dynamic with new products all the time, and that some requirements are different.

Take suits. Suits for business, country walks, dinners, funerals, weddings and so on have different requirements and styles, so there is an overlap that ensures diversity.

But where there is a commodity requirement, like I dunno, t-shirts, I buy the local Swiss chain store brand, which is good and dirt cheap. If I was trying to go to raves (that ages me) I would want something that had an impact. I would pay for a premium there.

(My fave is still the fairy liquid baby on a tee shirt with "wild green fairly hip kid" on it. Which I never bought.)

Posted by: Hamish at March 2, 2005 5:50 PM

Maybe "best" is the wrong word. Seth Godin says "remarkable." You can be remarkable without being the best. And best is certainly a form of remarkable. But if you aren't remarkable, you damn well better be cheap.

Posted by: Pat at March 2, 2005 6:42 PM

Pat, I used the words "best" and "remarkable" interchangably a few blog posts ago, and cited Seth:

"You might not have the necessary control to make your product the best in the world; what Seth Godin would call 'Remarkable'..."

So yeah, I covered my ass on that semantic front ;-)

Posted by: hugh macleod at March 2, 2005 6:52 PM

I will make note. Hugh's best = Seth's remarkable.

Hugh's Law "Best or Cheap, no middle ground."

I'm on board. The argument about Microsoft being neither the cheapest nor the best does not invalidate Hugh's Law. On some level it is a great example. Microsoft is 90%+ of the market. But Apple survives by being more remarkable. Linux survives by being cheaper. Hugh's Law doesn't determine the market leader. It is a measure of whether you can survive. English Cut won't ever dominate the suit world. But it can carve a successful niche thanks to Hugh's Law.

Posted by: Pat at March 2, 2005 7:11 PM

Best . . . remarkable . . . purple bullsh*t. Me thinks we all spend way too much time thinking and writing about this stuff and precious little time doing it.

If most businesses would simply understand people's expectations and consistently deliver on those expectations, they'd have it made (in the shade and in the market).

But hey . . . I could be wrong. ;)

Posted by: Tom Asacker at March 2, 2005 9:48 PM

Tom, I disagree ;-)

"If most businesses would simply understand people's expectations and consistently deliver on those expectations."

That's the mission statement of a company JUST BEGGING to be murdered.

Posted by: hugh macleod at March 2, 2005 10:37 PM

Hugh:

Read "Blue Ocean Strategy," a newly published book that covers exactly what you're talking about. The thrust of the idea is to create an entirely new market for a product or service where price isn't the issue. It's by creating a remarkable level of utility/value--so remarkable that the old competitors cannot compete. Check the reviews at Amazon for a synopsis.

Posted by: Keith at March 3, 2005 3:36 AM

brilliant stuff. One thing you haven't included in your equation, but something you've given due credit to before, is the passion and the joy of doing something well and sharing that with other people or errrmm clients. You can't buy it, you can't learn it. It's why your blog is so engaging to a molecular biologist, it's why Thomas is so ace at suiting technology. The blog then is a tool for dissemination of the passion and providing you with more opportunities to exercise your craft and bring benfit to many more people. There's still an imperative element of purity here in that passion and there will be peeps who get the blog thing, but do not have the drive to do the right thing because of greed and ego which (will become apparent soon enough and lead to inevitable failure). Am I there yet?

Posted by: Steve Griffiths at March 3, 2005 11:27 AM

I've heard:

1. best
2. cheapest
3. fastest

One's service to customers/clients can provide two of the above qualities, but never all three.

Posted by: Michael Ray at March 3, 2005 1:43 PM

Hugh, Hugh, Hugh. Please make an inventory of all of the "brands" that you purchase: toothpaste, beer, pub frequented, hair gel, pen used to sketch awesome cartoons, TV shows, socks, watches, cereal, toilet paper, bank, insurance, auto, bicycle, underwear, floss, utensils, restaurants, picture frames, airlines, books, beverages, camera, stereo, computers, cell phone, etcetera! Now do an honest inventory of your decision-making. How many Brands were chosen because they were the absolute cheapest? How many were chosen because they were the f---ing bomb!? And how many were chosen because they met your expectations (at that time)?

It certainly is true that expectations are being raised by the introduction of new products and services. And that's my point. Companies need to keep up with - and meet - those changing expectations or they're toast! I prefer to look to customer value as a way of remaining competitive, and not to colorful farm animals. Who knows, perhaps we're saying the same thing in different ways. ;)

And Michael. Beware (be aware), the old paradigm of "you can't be all three" is being blown to bits! Read the book: "Free, Perfect, and Now: Connecting to the Three Insatiable Customer Demands, A CEO's True Story" by Robert Rodin.

Posted by: Tom Asacker at March 3, 2005 5:12 PM

You mean a Bog Blog?

Posted by: john dodds at March 3, 2005 8:36 PM

Hmm, about the plumber idea. Ever have your arms up to your elbows in shit? I think carpenter might be better.

Posted by: jdb at March 3, 2005 11:21 PM

Tom, again, I am disagreeing with you (but damn, you make it so easy).

I am not saying "The only way you can make money selling dental floss, is if your dental floss brand has all the power, resonance and sexiness of Apple or Victoria's Secret."

I am saying, good luck selling dental floss if you're neither the cheapest, nor the best.

Because you are certainly going to need it. And in 2, 3, 5, 10 years time, you are goig to need it A LOT more.

If your big dental floss plan is "figuring out what customer expectation is, then delivering on it", well sorry, I don't envy you. Not that you can't make a good, steady living from it... at least, until Wal-Mart decides it's your turn in the barrel.

Posted by: hugh macleod at March 3, 2005 11:38 PM

Well then Hugh, let's simply agree to disagree. Stay passionate!

Posted by: Tom Asacker at March 4, 2005 5:27 PM

The kicker is this: It's expensive to be either and brevity is key.

Posted by: Sheila at March 4, 2005 7:33 PM

The thing about "good, fast, cheap" is that while a vendor should strive to deliver all three, as a customer one should know up front which one to forego.

The fourth parameter is "different". If I were going to be a plumber I would specialize in either Victorian fixtures in an historic district or industrial process piping.

Posted by: triticale at March 5, 2005 3:54 AM