My dissatisfaction about the beers that a golf club bar stocks started me thinking about what gives a firm monopoly power in the absence of any apparent reason. Unlike in software there are no apparent network effects, a dominant player has little leverage to bias distribution channels and switching costs for consumers are zero. So how can an inferior product (and I am firmly convinced it is inferior) continue to dominate the market?
I never quite understood why most of the most popular beers are as successful as they are, but in most markets advertising, pricing and control of distribution provides and explanation. However in Sri Lanka, where I have lived for much of the last decade, the changes in the beer market are less understandable. The puzzle is this: the market is dominated by two manufacturers, the smaller of the two (Three Coins) has hugely improved the quality of its products but does not seem to have seen a corresponding increase in market share. The larger manufacturer (Lion) dropped a perfectly good product, started making Carlsberg under license (it is nothing like as good as the discontinued pilsner, but it sells far better). Unless my taste buds completely deceive me Lion has also lowered the quality of its flagship product. It has maintained its dominant position to the extent that many places (including the bar at my golf club) do not stock anything else. Even in bars and restaurants that stock both brands, asking a waiter what they have almost always gets the answer “Lion and Carlsberg”. On the other hand almost everyone I have persuaded to try Three Coins new range has started drinking them regularly. Obviously this does not constitute proper market research but the results are too strong not to be significant.
The only explanation I can think of are simple inertia and network effects. Bars stock what consumers drink and consumers largely drink whatever is available in their favourite bars. Neither sees a reason to try anything different. Three Coins probably also suffers from the poor products it made in the past – I suspect the brand is too tarnished to easily persuade people of the huge improvements in quality. Most of all most people probably want a cold liquid with alcohol in it and do not care much what it tastes like.
The parallel with software is fairly simple. In fact the situation is even more peculiar because so many people are actively dissatisfied with the dominant product, but they still will not buy anything else. Most people I have switched from dominant products to another product – from Windows to Linux and from Internet Explorer to Firefox and will not switch back. As with the beer this is fairly convincing evidence of the superiority of the less widely used product.
Part of the answer is that people regard using computers as difficult and are frightened to switch to something different (even though a better designed product may be easier to use), so unlike the beers there is a perceived cost to switching. In addition people are unaware of what the less widely used competition is like – just like the people who never taste the less well selling beer. Much of the answer is that many people will use whatever software is installed and their computer when they buy it, and manufacturers, of course, install the most popular software. Just like drinkers who drink what the bar stocks and bars who stock what they know sells.
Obviously in the end much of this boils down to an endorsement of Apple’s slogan “Think different” – and if you ever visit Sri Lanka I recommend Three Coin’s Irish Dark with spicy food.