Saturday, August 30, 2003

Conquering mind space: Why oligopolies prevail As we have stated before, one reason companies build oligopolies is to get an advantage in conquering the mind space problem. That problem is aptly summarized in that excellent book, The Tipping Point, Malcolm Gladwell, (Little, Brown, 2000). We have become, in our society, overwhelmed by people clamoring for our attention. In the past decade, the time devoted to advertisements in a typical hour of network television has gone from six minutes to nine minutes, and it continues to climb every year. The New York-based firm Media Dynamics estimates that the average American is now exposed to 254 commercial messages in a day, up nearly 25 percent since the 1970's. There are now millions of web sites on the Internet, cable systems routinely carry over 50 channels of programming, and a glance inside the magazine section of any bookstore will tell you that there are thousands of magazines coming out each week and month, chock-full of advertising and information. In the advertising business, this surfeit of information is called the "clutter" problem, and clutter has made it harder and harder to get any one message to stick. ...Much of what we read and watch, we simply don't remember. Oligopolies that produce products can get past this obstacle in several ways. First, they can crowd the channels. If there are only a few companies in each sector that can afford to advertise, then there is less risk that an upstart can get a serious market share. Guerilla marketing is always possible, but we only hear about the (very occasional) successes. And, as we've stated before, if a Snapple or a Ben & Jerry's does manage to break through the clutter, it can always be acquired. And some acquisitions can be later simply chucked (such as Fresh Samantha), with the value of clearing out market clutter for other products. Second, in a cluttered market, established brands have a big advantage. With a few badly played exceptions (Schlitz beer is one of the most famous), maintaining the popularity of an established brand is much easier than starting a new one. Unless a new product is significantly better or the old product declines seriously, established brands have the big advantage. And most large companies have learned how to preserve their brands vigorously. Hence, the emphasis on billion-dollar brands and key brands as the best source of future revenue. Brands are not allowed to coast. Third, big customers get bigger discounts, in this case for advertising and such other plusses as shelf position and cooperation in promotions. Big companies have automatic entrée to purchasing departments, distributors, and event promoters, something for which small companies have to struggle mightily. Fourth, big companies have the means to experiment and persist. If a new product fails, well, that's just part of the game. If one looks promising, there's plenty of money to manage it through the early months. There's no danger of running out, if a good chance of return is there. In other words, for oligopolies, their products do not have to pierce the clutter immediately That's not to say that failing products aren't dropped fast, but that there's a little breathing room. For a small company, there's little room for failure. Finally, there's brute force. In some cases, an extraordinary advertising budget can clobber customers into granting mind space. That's the way in which most Hollywood movies and political candidates are marketed. This is an appropriate strategy when the product is a one-time phenomenon, where short-term mind space is the key. 2:20:38 PM

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