“The mind of the market”.

“The mind of the market”. Is belief & prejudice a restriction on strategic advantage?

The mind of the market: restrictive mental models • WroeAlderton & “executive behaviour” • Gerald Zaltman & “the mind of the market” • Ingvar & human brain’s ability to detect signals

Consider…. “That’s an amazing invention, but who would ever want to use it?” US president Rutherford B Hayes to Alexander Graham Bell about the telephone in 1876 “I think there is a world market for about five computers” IBM Chairman 1947. “There is no reason anyone would want a computer in their home” Ken Olsen, (founder of DEC) 1977 “Here is a cautionary tale about a telephone giant and a management consultancy. In the early 1980s AT&T asked Mckinsey to estimate how many cellular phones would be in use in the world at the turn of the century. The consultancy noted all the problems with the new devices (the handsets were absurdly heavy, the batteries kept running out, the coverage was patchy and the cost was exorbitant) and concluded that the total market would be about 900,000. At the time this persuaded AT&T to pull out of the market, although it changed its mind later.” The Economist 9 October 1999. “Renewables are a joke.” Board member of a UK utility in 2005

Consider… • Before Direct Line insurance, no-one bought insurance remotely. • Before First Direct retail banking was all about the High street Branch. • The changes in the airline industry.

The age of the national/similar carriers. BA: “putting people first” SAS: “moments of truth”

Virgin • Followed Laker & South Western • Re-defined service. • Appealed specifically to open-minded, modern consumers, successful but not BA corporates. • Already knew the segment. • Managed perception. • Admits mistakes. • Sexy, irreverent, edgy, exploring.

BA is still reassuring • ‘calm’ check-in • terrace lounge • Concorde Room • Elemis spa • pre-flight dining • raid the larder • Executive Club • 1st: Blackberry andmobile check-in

Now there is choice High Cathay Pacific PERCEIVED PRICE Virgin British Airways Easy Jet RyanAir Low High PERCEIVED QUALITY Low

So, what is the “mind of the market”? • Beliefs in markets. For instance: • The world is getting more global • Customers are becoming more demanding • Competition is increasing • You must keep innovating new products • Its all about price • “The product you create on a Monday , is a commodity by Wednesday”

Challenging just one of those: • The economic historians. • The economic history. • International trade agreements. • Culture as an economic & political force • Political integration or fragmentation? 1946: 74 independent countries. 1950: 89 1995: 192 2011/2012: 194: Southern Sudan, Palestine? Scotland? 58 of today’s states have populations of less than 2.5 million.

So some people are not playing by the West’s rules. • Goldman Sachs & “Centre’s of capital” • Fujitsu & trans-national • HSBC & “The world’s local bank” • Acquisitive Tata. • The remarkable Mr Zhang

So, what is the “mind of the market”? • Beliefs in markets. • Restrictive mental models • Shared by all suppliers. • Reinforced by observers. • Colluded-in by buyers. Ignored by new entrants.

Questions for discussion • What assumptions does my sector make? • How do the sectors compare? • Are there any ideas from a different sector that would give competitive advantage?

“The mind of the market”.