George J. Stigler won an Alfred Nobel Prize in 1982 for his work in economics sciences, and his thoughts on barriers to entry have been shaping marketing ever since. Barriers to entry are obstacles or areas that block the path of a company who is attempting to enter a market.
For those of us who either slept through marketing economics, or it has blurred together between not sleeping and partying, I think a little refresher is in order. This is just a brief overview of barriers to market entry, so let us not over examine it.
Barriers protect firms who are competing in a market, by keeping newcomers out. They are also key to a company’s pricing power, giving a company the ability to raise or lower prices without losing customers.
Common types of barriers include: Advertising, Control of resources, Customer loyalty, Economies of scale, Distributor agreements, Government regulations, Inelastic demand, Intellectual property, Network effect, Predatory pricing, Research and development, Sunk costs and Vertical integration.
Michael Porter, the Bishop William Lawrence University Professor at Harvard Business School has defined some clear effects of high and low entry and exit barriers of market entrance.
- High entry barriers have very few players, creating higher profits.
- Low entry barriers have many players, creating lower profits.
- Markets with high exit barriers are seen as unstable, causing profits to fluctuate.
- Markets with low exit barriers are more self-regulated, and profits do not fluctuate as much.
There are also four general types of competition that relate to these theories:
- Perfect competition: Almost no entry barriers
- Monopolistic competition: Low entry barriers
- Oligopoly: High entry barriers
- Monopoly: Extremely High, almost Absolute entry barriers
So what does it all mean?
Simply, that if you think about things before you act then you’re twice as likely to accomplish your goals. But more importantly, there are many things that you should consider before launching a product into a new market. And as always, I have a quick example from my school days.
Example: Nike Air Jordans are for Gods
I remember, only slightly, reviewing case studies relating to missing the mark with product launches. One such case study that has always stuck with me is the case of Nike vs. CAIR. The article revolved around how Nike, in 1997-98 was force to recall 800,000 shoes because they had almost directly translated the word “Air” into “Allah.” This is probably one of the best cases of how a company must be aware of cultural differences when entering a new market, and how different cultures now play into market entrance.
It wasn’t long ago when the common University mentality was that English was the language of business, 2003 to be accurate. But this was another thing that University seems to have been wrong about. Fast forward to 2010 and the advancement of a globally interconnected world and it would appear that the only way forward for globalization is the adoption of many languages and cultures.
I have spent the weekend skydiving with a commune of skydivers at Medio in Celle, Germany. The divers spend their afternoons jumping out of airplanes and the evenings uploading and being plugged into the wireless Internet. They review pages and contact people in French, Spanish, English and German. They talk with friends and friends from all over the world in multiple languages.
While the old guard is still working in only English, the newer younger generation is changing and networking the world in multiple languages. It is no longer simply enough to spend four semesters learning to read basic Spanish in University. If leaders of tomorrow want to continue to succeed and excel in international business then it will be a must that they begin learning to communicate in multiple languages and living and being apart of foreign communities.
To learn to be effective in the world of globalization one must not simply learn to communicate in multiple languages they must also be able to integrate and understand multiple cultural attitudes, and not expect that the world of Universities will bring these opportunities to campus dorms. Even if a student takes a semester abroad, it is not likely that they will actually have the chance to integrate into or learn about what the culture is truly like. For those of you who are interested in learning more about language options, I would suggest busuu.com to see a great option.
In 1996 in the “English Only Worldwide or Language Ecology?” Robert Phillipson and Tove Skutnabb-Kangas discussed the concept that the worldwide web could be helping to develop the ecology-of-language. As we actively move into a less clear understanding of what the future will bring, one thing appears to be evident. To be successful in the world of marketing to be successful we must learn to work together. We must be willing and interested in learning more than just languages. We must also be interested in understanding cultural differences. The world of digital marketing, just like all other aspects of life we can no longer living with blinders of the world around us.
These developments have been thanks, in no small part, to the strong infrastructure that has been developed by France and Germany with their own language specific environments. But to be able to reach target audiences we must do more than simply know that they exist, we must have insight of the cultural norms and attitudes. Your ROI seems to be more effective when it is spent on hiring smaller boutique agencies that have key insight into your target audience, and not simply hiring a large global agency who is oblivious to the rest of the world.
Having worked in a global agency, I have seen first-hand how an agency can attempt to bring in outsiders as CEO’s. And I have seen these people cost agencies multi-million dollar accounts. Not mention adding a client that no longer wishes to work with our agency.