Jun 25, 2006

Commoditization versus scarcity

"An emperor once tried to get the 10 books written by the Cumean Sybil to interpret events pertaining to the future of Rome. But he refused to buy them at her price. Each day that he held out, she burned another book--until he finally paid the original amount for the three remaining books." This story is told in a journal on architecture and design, titled “Confronting Commoditization”.

After relating the story, the writer adds, “I am not advocating that you dispatch your seven closest competitors. Still, if a customer can’t or won’t understand the difference and value between similar competing professional services, then price becomes the only deciding factor.”

The business pains described in this article are specific to the architectural design industry, but the ideas and advice would resonate within the payment card industry as well.

If all payment cards look as identical as copies of the same book, then the only differentiation is indeed price. And if card payment, from the merchant’s perspective, is not fundamentally different than other payment methods, including cash, then payment fees are the primary area of differentiation. Hence their desire to force card fees down to the perceived cost of handling cash (close to zero in most merchants’ minds, despite the tremendous effort of banks to convince them otherwise, an effort that has totally failed).

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