Kevin James - The IT Control Specialists

    Beware the Race to the Bottom in IT

    You know those phrases that show up, but you don’t really know what they mean? For me, it was the phrase ‘Race to the Bottom’. No matter what the context, or the person using it, the phrase never made sense. It just seemed to be something that people said for effect, which, ironically, only had the effect of making me more and more angry.

    It was not until recently, when I learnt about Oblique Marketing (which I will come to in a moment), that this phrase actually seemed to hit home, to take real shape. Suddenly my eyes were open to a whole new area of understanding which made other things simple to appreciate and understand.

    It also showed me that companies face a huge risk when looking at IT companies in the future.

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    Perhaps I’m not a naturally economically minded person. Perhaps, for most people, the phrase is just a basic principle, but then again, perhaps not.

    What is a Race to the Bottom?

    A race to the bottom is the idea that in a market where people compete directly (but only focus only on one single metric such as price per unit), then the only way to ‘win’ is to drop that metric to a lower value than competitors. This leads to a situation where costs and profit are always being squeezed and the customer is always assumed to desire the lowest possible price.

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    Many people believe the notion of price competition is the basis for capitalism and strong business, but let’s take a step back for a moment. There are instances where pricing becomes, if not irrelevant, then certainly far less relevant in the decision making process. The most obvious diversion from price competitiveness is the idea of branding.

    Off on a tangent: Just what IS a brand exactly?

    A brand is a signal to a consumer. Using a logo, clothing, particular colours and fonts, or other distinguishing and highly visible features, a company can create an association. This is done for a simple reason – to make a product or service more desirable to a particular group of people. This can be a particular ‘in-group’ who have a special need, a way to assure build quality or highlight a high level of service. In other words, a brand is a way for a customer to give an experience some context.

    Say, for instance, you take a flight with Emirates or British Airways – your experience exists within the context of that brand. You might note that the company has spent time and attention providing the latest films, the comfiest chairs and additional freebies for the journey.

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    Contrast this with a flight with Easyjet or Ryanair. Here, the experience is not judged on the same factors. The focus is on rather providing a basic service, rather than comfort and entertainment.

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    The difference in the context of the ticket purchase is reflected in the price. They offer the same basic service, but the way that the company has chosen to deliver those services is contrasting. Again, the service is essentially the same – the end result is travelling from one place to another in probably the same type of aircraft, but the expectations created, and ensured by, the brand are totally different.

    Why does branding matter?

    Lets say that all four of those businesses wanted to make their focus the price, rather than considering other factors. The people who want more comfy seats, to watch the latest films (for free) and additional freebies on their journey would not have that option, and thus would not get to enjoy that service.

    Additionally, the four businesses would be inhabiting the same pool of users (or market) who are looking to secure the cheapest flights. This would force the companies to keep lowering their prices in order to stay ahead – or in other words, to compete in a race to the bottom [possible price].

     

    That’s all well and good – but what has that got to do with me?

    The short answer is: Everything.

    To explain, we need to return to the phrase we used earlier: Oblique Marketing. This is the idea that if you want to compete with someone, and you want winning to be a lucrative operation, often you don’t want to compete directly. There are other, often more effective, methods to achieve the same goal through understanding what is not yet available for a group of people who want it (even if they don’t know they want it yet). This is sometimes called niche targeting but in many cases it does not involve only niche markets, it just requires a thorough understanding of what could be possible and who may want it, primarily by leveraging psychology rather than just rationality.

    Looking at a market in this way is the ONLY defence against a race to the bottom and the inevitable squeezing of costs and profits. Ultimately, Oblique Marketing can help a business ensure they have the resources to meet a customer’s specific need by charging a premium. Sometimes this is thought of as a unique selling point for a product (USP) or an ‘Ethos’ for a service, but when this is considered business-wide these phrases fail entirely to capture the reasoning.

    A USP and Ethos exist only to meet the needs of an existing market where those qualities or features are required or demanded but are not yet satisfied by the price competition model.  Oblique Marketing exists to show that there is more than one way to achieve the same goal, if not in the exact same way.

    Oblique Marketing is a difficult concept, in the sense that it often ignores what is ‘normal’ in favour of being truly unique. This is often extremely difficult for those who have a love for financial planning and modelling, but at the same time is the only cure for stagnation and eventual decline.

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    An example:  Around 15 years ago, a bunch of engineers were asked to improve the journey for the Eurostar. They spent six billion pounds shortening the travel time from London to Paris by 40 minutes.

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    Rory’s Sutherland (Of Ogilvy and Mather) was consulted and instead suggested that they install free Wi-Fi in the trains for about 0.01% of the cost. Additionally, they could hire all of the world’s top supermodels and pay them to walk down the train cars handing out free Chateau Petrus for the entire duration of the journey.

    His contention was that this change would not only make the journey far more enjoyable, and set a new important standard within the industry, but they would still have five billion pounds left to spend (or give to their shareholders!).

    There was one issue with this proposition though – now the customers would ask the trains to be slowed down!

    The point here is that focusing purely on the speed metric was an awful and extremely expensive proposition. By considering what people who use trains actually want (even if they don’t ask for it) you can achieve significantly better results at far less cost. The key point to remember is that intangible rewards like enjoyment might not be as measurable or visible, but they are just as important.39186970 - internet phishing, hacking login and password, internet security concept. flat design vector.

    Why does this matter in the world of IT?

    There are lots of IT companies. Some are undoubtedly better than others. The service they provide is very rarely the exactly the same and securing a clear price point can be a tricky business, primarily because of the sheer number of services, qualifications and equipment which are provided.

    Much like the example with airplane companies, the service they provide at a basic level the same, but there is a vital and important difference which just isn’t highlighted. The IT world is not standardised in the same way. Companies do not have to adhere to strict guidelines imposed on companies that are actively protecting people’s lives. Instead, all of the configuration, crisis management and contractual obligations are set internally.

    Imagine if tomorrow, Ryanair were released from their obligations to run the full schema of rigorous tests and checks before they took off. It would not be long before they decide that doing less checks and buying cheaper (and less reliable) equipment would benefit their bottom line and help them compete more effectively.

    In this case you would quite rightly say that this is not a good idea: That the risks which would arise would be too potentially dangerous to allow. This is the real and present danger you take by focusing on price alone in the world of IT. This is also a big risk moving forwards as companies start to look at how they can maximise their profits, while their customers become more and more reliant on the services they provide.

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    Any IT company that respects their customers will have put robust measures in place to ensure that regardless of the circumstance, their customers are safe and secure. This includes working with partner companies who have gained a strong reputation for data protection and resilience, as well as services which are updated to provide real protection against every potential threat that exists. For us here at KJL, we recognise this as more important than almost any other factor in IT, and urge other IT companies to do the same.

     

    How can this issue be solved and your future protected?

    Easy! Communication. The hardest problem for an IT company is knowing when to invest money in providing something special for their customers. Often customers are resistant to increases in spending, even if the change will have significant impact on operations and quality of life. What is required is for a company to be receptive to new ways of achieving a goal, or at least learning what is possible with some flexibility.

    Here at Kevin James we value the power of discussion. We understand that price is not the only metric that matters with technology, and that while its our job to understand the benefits technology can bring, sometimes our customers need to be guided through changes which can have incredible impacts.

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    What do we do?

    We help companies improve the way they operate by investing our time and money into the checks and balances which assure our customers (metaphorically) stay in the air. We know that profits are less important than providing a robust and resilient service that will never let our customers down. We achieve growth as a business through repeat business and greater uptake, meaning it is in our own interests to maximise the protection element for our customers and offer a service which is consistently high level.

    If you are interested in marketing and would like to learn more, we run short-courses throughout the year. Click here to learn more.

    If you would like to know a little more about KJL as a business, then why not check out our About Us page or give us a call directly. We would love to have a chat and help renew your confidence in your IT setup or Support Team. Just call now on 01268 627111.


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