As a school student my favourite subject was economics. I went on to study it at university. One of my first lessons was about the basic models of microeconomics. They were attractive to me because they made the world seem understandable and predictable.
However, some critics believe economic theory’s predictability is based on flawed assumptions about the way the world works. For example, economic theory assumed ‘transparency’, which meant that a potential buyer knew the quality and price of every product on the market. Back before the internet, this was rarely true except in a small number of markets for homogenous products. The stock market is an example.
Twenty-five years on and the world is very different. “Transparency” no longer looks like an academic pipedream. Why? Because of the huge amount of information accessible to consumers online. All retailers need to be aware of the shift to increasing transparency, and what it means.
Perhaps the clearest examples of transparency are the online marketplaces. Go to eBay, or any auction site, and search for a product. You will be presented with several potential suppliers along with an exact quote of the price of delivery. For those looking to compete successfully, there are really only two options: be cheap or be unique so nobody else can undercut or copy you.
The second example of price transparency is customer-driven price-checking. Using mobile devices, customers now have the ability to check prices for the same online while they are shopping in a physical store, or a few minutes after leaving. It is a phenomenon more commonly known as ‘showrooming’. How can successful retailers respond? The trick here is to embrace the change rather than fight it. Customers are going to compare different offers anyway, so put yourself in a stronger position by making it as simple as possible for customers to compare your offer.
Transparency impacts quality as well as price. There are now numerous review sites online that let customers rate retailers on every possible criteria, from product quality to delivery speed. These sites open up a whole new perspective for customers, who can now access the wisdom of the crowd before buying a product. These sites keep retailers honest. There is no way to circumvent them – apart from having consistently good service and products.
Retailers now operate in a world of increased transparency when it comes to price and quality. It’s a world where poor quality or high price offers are quickly found out and efficiency and quality receive their reward. It is a tougher world. But it’s a world that more closely resembles the ideal economic models of my studies.