The price vs value game

It has, again, been quite a while since I last wrote. We were all busy helping the Speaker’s campaign for the mayorship of QC. I’m glad the Speaker won that race very handily, and the family is still ecstatic about it. But now we’re in the post-election blues, and I mean "blues." Market analysts were saying the stock market would start moving upward after the elections. It sure has moved, but with the exception of a couple of stocks, the movement has unfortunately been a negative one, aggravated further by an assault on our tourism sector. As Wash SyCip, founder of SGV, used to tell me, a robust and successful tourism sector is the key to sustainable economic progress for a nation like ours. His other favorite, of course, is education for the masses.

I can surely believe his tourism theory. My family and I just returned from a trip to Phuket and Bangkok. It’s off-season over there now, but you could’ve fooled me. The Phuket FantaSea Show was full to the brim. As many know, the "Amazing Thailand" tourism campaign has been a key factor in mobilizing Thailand through the Asian Crisis which it "started" in the first place. But while in Phuket, for example, I remember telling my wife, "Palawan is a much more beautiful place than this. If only we had the infrastructure to support it." In fact, my family and I were also in Palawan last month, and we visited Honda Bay, among others. So it really hit us like a bolt of lightning to hear the news of the tourist attack over there. Saying we have serious problems over here is a huge understatement. The only guys making out big-time are these terrorists. They dictate the market!

Getting back to those "couple of stocks" which have moved upward, the most notable has to be ICTSI which is the true Philippine multinational with operations all over the world (Latin America, Africa, the Middle East, Asia, etc.). Ricky Razon has steered the company to where it is today, a very significant portion of its revenues and profits comes from overseas and less and less from this country. This is probably one reason why the stock has zoomed upward even as everything else has gone south. Anyway, I saw Ricky several weeks ago. We got to talking about dot-coms since Ricky was curious to see how I was doing in this field. I recall Ricky telling me how dot-coms forgot all about the reason we get into business (most of us anyway), i.e., profits.

Maybe my buddies at Monitor Company are also concerned about me. Recently, they sent me premier Strategy Guru Michael Porter’s recent article "Strategy and the Internet." As Professor Porter points out, "Many of the pioneers of Internet business, both dot-coms and established companies, have competed in ways that violate nearly every precept of good strategy. Rather than focus on profits, they have sought to maximize revenue and market share at all costs, pursuing customers indiscriminately through discounting, giveaways, promotions, channel incentives, and heavy advertising. Rather than concentrate on delivering real value that earns an attractive price from customers, they have pursued indirect revenues from sources such as advertising and click-through fees from Internet commerce partners. Rather than make trade-offs, they have rushed to offer every conceivable product, service, or type of information. Rather than tailor the value chain in a unique way, they have aped the activities of rivals. Rather than build and maintain control over proprietary assets and marketing channels, they have entered into a rash of partnerships and outsourcing relationships, further eroding their own distinctiveness. While it is true that some companies have avoided these mistakes, they are exceptions to the rule."

There’s a lot to learn from Porter’s findings about the Internet and strategy, but the basic message for me (again) is the Internet isn’t an end but a means, a powerful tool which, if used the right way, can enhance a company’s competitiveness and profit-generating capability but if used the wrong way (and most companies today fall in this category) can quickly erode even one’s competitiveness in the brick-and-mortar world. The Internet today has generally transformed companies to compete based on price and not value (i.e., lowest price gets the customer). And when that happens, profit margins are pressured and eventually erode. And because of access to a greater array of real-time information sources, the end customers/buyers become even more powerful as they play one company’s price offerings against another.

I believe the survivors of the Internet carnage are now emerging. These are the guys who are going to successfully leverage real value propositions to earn a price which their customers will be more than willing to pay for because of the value they receive. And this is going to be a good price to these companies with a healthy profit margin, not some low-ball price scheme or the dreaded freebies. The true value players will win out, and the "freeby" players will disappear. As an example, solid players will increasingly begin to charge subscription fees for access to their content, services and other value offerings. And of course, those who really don’t have much value to offer will wither away. That’s good. That will clear up the excessive clutter caused by the extremely low barriers to entry into the Internet. In the long run, that’ll be better for the end customer as well.