Predator v disruptor

Pricing is a temporary advantage to gain market share and not a change that transforms consumer habits

By Mohan Sule

The giddy reaction to Reliance Industries’s foray into telecom pivoted around how the predatory pricing of voice (nil) and data (huge discount to prevailing market rates) would cause turbulence in the industry. Forecasts ranged from tariffs tumbling across the board to consolidation among players. There is no price war in evidence so far nor has the valuations of the top tier rivals plunged though Reliance Communications and Aircel have agreed to merge. The episode, nonetheless, has brought the focus back on what causes the market to change complexion irrefutably. Are these gradual or sudden? The dominance of Apple in the handset space is not due to its competitive pricing. Yet makers of cheaper models were unable to keep up. Steve Jobs created a mobile computer-cum-camera that was aesthetically appealing. Technology that enhances users’ experience can trigger turmoil in a historical model depending on supply-side advantage as illustrated by the gaining popularity of taxi apps. They have shaken up the way we choose to travel by empowering passengers, upending the prevalent practice of taking up the service being offered. The first takeout is that transformation in market dynamics depends on how effectively evolution is captured for the convenience of the customer. Some of the e-tailers are absorbing this important lesson the hard way. The initial proposition of getting orders at the doorsteps quickly has deteriorated into free-for-all price discounts, taking a toll on the delivery timeline. Though a virtue, scale alone cannot rupture the fabric. Looking back, there is realization that the Internet by itself would not have had the force to bring about an upheaval if not for the blooming of online payment modes just as plastic money is believed to have spurred consumption.

The government’s thrust on niche channels to transfer money is an efficient use of the digital platform to widen and deepen the reach of banks.The aim is to eliminate the informal system that charges huge interest rates and plug leakages of subsidies. In fact, the netting of the non-banked will be the first step in doing business with big banks. The primary market for equities and bonds is a supplementary route for companies to raise risk capital and not a substitute for borrowing from banks. Importantly, traditional banks are adopting technology to make transactions for customers simple and speedier. Computing did not erase the need for maintaining accounts but eliminated manual book keeping. The second observation is that disruption has to alter the contours of the industry and should not merely be a flyover to reduce discomfort. Till becoming a member of the World Trade Organization, Indian pharmaceutical producers could get away by making copycat products by reverse engineering. Now, they have to wait till the patent expires to manufacture generics. Their market has expanded across the globe as patients in rich nations switch to cheaper versions of the expensive medicines that they were prescribed due to the reluctance of the developer to bring down prices.

Automobiles is another sector that is projected to see turmoil in the coming days. Electric and self-driven cars are thought to bust traditional auto companies as outsiders are taking the lead. Pricing and safety, however, will determine mass acceptance. Even legacy manufacturers can foray into the arena by modifying their existing platforms. A fallout might a plunge in oil prices and the possibility of the comeback of fossil-fuel-run vehicles as they become affordable. If this happens, the current uncertainty might turn into much ado about nothing. Investors in FMCG stocks are in a flux as personal-care products with Indian flavor are catching fancy. It is too early to say if this is a fad that will fade over time. Going by the recent quarter results, the urban-oriented fast food sector seems to be going out of fashion. This means its popularity was a manifestation of increased purchasing power rather than a displacement of entrenched habits such as the increasing use of cell phone to capture images. The third conclusion, therefore, is that though shedding of the skin will be a recurring phenomenon, the process will be life-altering only if there is no going back to the old lifestyle. Showing signs of giveaway is the way media are being consumed, with handsets streaming entertainment on demand. Not surprisingly, the market is turning to predictable industries such as oil and refineries, power, construction, logistics, cement and housing related products for comfort.