Cost. It’s more than just the price paid. We also pay in time and effort. Money, time and effort — we weigh all of them when we’re deciding what to buy and how.
In this series of posts, we’re noodling our way through Thales Teixeira’s findings, as presented at the 2017 New England Newspaper Convention. The title of his talk was “Responding to Digital Disruption.” In it, he introduced a new lexicon to describe strategies that have caused the rise and fall of business models.
“Cost” is an old word we need to think of in a new way. Two new concepts we also need to learn are “integration force” and “specialization force.”
In their paper, “The Decoupling Effect of Digital Disruptors,” Teixeira and Peter Jamieson define the integration force as “the sum of all the benefits received and effort avoided through ‘one-stop shopping.’” Integration forces strengthen the link between two consumer activities.
Specialization forces act in the opposite way, weakening the links. “Specialization forces tend to arise from opposing benefits, such as a retailer that offers a wide variety of goods and in-store service, important at the searching/sampling stage versus those that offer low prices and product availability, important at the purchase stage.”
Here’s the key quote from Teixeira and Jamieson’s paper: “Whether consumers couple or decouple adjacent stages depends on the net effect of the integration and specialization forces.”
Lost yet? Hang in there. Let’s put it all together with an example. His name is Joe.
Joe is not computer literate. He has a smartphone, but uses it only to make and take calls.
Joe wants a new TV. He drives to Best Buy, talks to a salesperson, looks at various models, compares their prices and makes his choice. Could he get it cheaper elsewhere? Maybe. But the time and effort costs associated with leaving Best Buy, driving to another store, parking, walking in and finding the model he wants aren’t worth the $20 he might save. So he buys his TV at Best Buy.
In Teixeira’s lingo, the integration forces exerted on the link between Joe’s browse — buy activities was strong, so the link held. Best Buy made the sale.
Let’s add a wrinkle. Joe’s daughter teaches him how to use an Amazon app on his smartphone before he goes to Best Buy. He drives there, talks to a salesperson, evaluates various models (showrooming) — and then he uses the Amazon app to compare prices, make his choice and buy from Amazon.com.
Once Joe knew how to use Amazon’s app, specialization forces weakened the browse—buy link. The forces arose from the opposing benefits offered by Best Buy and Amazon. In Teixeira’s words, Best Buy offered “a wide variety of goods and in-store service, important at the searching/sampling stage.” Amazon offered “low prices and product availability, important at the purchase stage.”
In our next post, we’ll talk about what Best Buy did to counter Amazon. Stay tuned.
This is the fifth in a series of posts reviewing a presentation given by Thales S. Teixeira, Harvard Business School professor, at the 2017 New England Newspaper Convention. If you’d rather read Teixeira straight, visit his working knowledge papers. To read this series in order, please view: