Log Cabin Democrat Op-Ed: Choice satisfies (04.11.1995)

Peter Lorenzi, Dean, University of Central Arkansas

Much of the success of the American economy is attributed to a strong market economy, to the competition between firms for customers. But looking closely at competition reveals a more important factor: choice. To compete, companies offer customers choices, and to meet their needs customers. Sometimes competition between firms does not always produce choice, because the firms look at each other rather than at the customer. When firms compete for customers with the same product, customers have limited choice.

If there are six dairies in a city, and all of them only offer plastic half gallons of milk, customers have little meaningful choice. Each dairy may have different costs to produce those containers of milk, and charge different prices, but if each dairy identifies a specific customer need, and makes different milk products, customers get choices. And choice does not necessarily mean competition. Offering more choices can increases the size of the market, making more business for every producer. In the case of the dairies, one might offer chocolate milk; the second, convenient home delivery; the third, returnable bottles for the ecology-minded; the fourth, six packs of cartons of milk for families; the fifth, a low-calorie version for the weight-conscious; and the sixth, a high-fat version for those who prefer "real” milk. And, of course, a single dairy could offer all six of these products. Another example: Video rentals have not reduced film makers’ revenues, because videos offer customers more choices about when and where they can watch a movie. Video rentals have increased the number of customers for movies. But as more American homes tie into pay-per-view systems, video stores are threatened. Video stores may consider offering "mini-theater” environments for small groups of people, for customers more interested in getting out of their homes than they are in taking a video home (and back to the store). Thirty years ago, Americans had relatively few choices for automobiles and television viewing, even though the three big firms in both of these industries competed heavily amongst themselves and held about 95% of their respective markets. Today, the three big hold less than 70% of their respective markets, since today their are hundreds of car models from which to choose and dozens, even hundreds of television viewing choices. The best way to compete is to offer something important that is not offered elsewhere. Satisfying customers by providing them with choices may be better than competing with other firms with similar products. Adding customer choices can make the market bigger and actually decrease competition.

The primary threat to a business is not so much from today’s competition as it is from tomorrow’s alternative, the firm that will come out of nowhere and win over that firm’s customers. That’s why it is essential that a company not only find new customers, it must also build customer loyalty. A good company helps their customers become "addicted” to the company. And loyalty to a company or even to a brand is more difficult today because of the expanding number of choices offered to a customer. Today’s typical grocery store stocks thousands more items than they did in the past. And, at the same time, small, specialized mini-grocery stores can be found everywhere, offering convenience, if not lower prices. Conway even recently added a "drive through” grocery store.

Most American business leaders espouse our system of competition but their reality is that life would be a lot easier for any company if there was less -- not more -- competition. Competition makes life tough for any firm, tougher yet better in the long run. New products come from a desire to find new customers, to make current customers happier, to reduce costs. Creating choices enhances customer satisfaction and creates new customers.