Flutterby™! : the market for lemons 2007-05-15 15:34:31.252975+00

the market for lemons

2007-05-15 15:34:31.252975+00 by Dan Lyke 3 comments

The sex theme has me thinking about fraud, but I've also been doing pondering recently about commodities and value recently, and I'm coming back to notions of running open companies and trying to educate customers rather than base profit on knowledge that the seller has and the buyer doesn't.

Bruce Schneier muses on why bad security wins in the market, in the context of George Akerlof's paper The Market for "Lemons": Quality Uncertainty and the Market Mechanism.

You can apply many of these observations for markets for all sorts of things, I think I've agonized before over how you tell if, for instance, cookie sheets are good or bad, and I could have sworn I linked to this previously, but I can't find it now, so courtesy of Jay here's The Man Who Said No to Wal*Mart, on Jim Weir, head of Simplicity, which acquired the Snapper brand of lawn mowers, refusing to sell to Wal*Mart because the conditions involved creating a cheapened version of their brand which would lead to consumer confusion.

As we see versions of, for instance, brand name tools made specifically for big box home improvement retailers, it's damned rare to see someone stand up and say "no, I'm not willing to dilute my brand for the sake of more immediate sales". Which is sad, because the brand is what has long-term value, but on the other hand we see so many other companies looted for immediate stock value because playing for the long-term doesn't get the board or the CEO big payoffs, why not grind the brand to smithereens?

The brand issue is more complex than merely quality vs. reputation. Look as Schwinn Bicycles. They were once the paramount brand in the market, famous for their quality. They refused to sell to department store chains like Sears, and instead fought to keep a cadre of dedicated bike stores with good customer service. In other words, a strategy similar to Snapper lawn mowers.

The problem came in the late 70s when the company lost its way. Tastes changed, and Schwinn missed out on the mountain bike revolution. They also missed that serious bikers were assembling bikes from different component builders, rather than buying one off the shelf. Eventually they began to import bikes from Taiwan, but missed the chance to buy Giant Bicycles Ltd. Eventually Giant took what they learned and ate Schwinn's lunch. Now two bankruptcys later and a purchase by Sam Zell, the Gravedancer, the name is alive, but just barely. The moral is that while its good to preserve brand value, times do change, and sometimes you have to change with them.

Good observation! Yeah, Schwinn's brand meant something that's been out of favor for 30+ years (although the "cruiser" bike seems to be slightly back), and I think part of that is that there wasn't really an adult market for bicycles in the 1940s through the 1960s, bicycling was something you might do with your kids.

And the other interesting casualty of that era was Huffy buying Raleigh. I don't know that a brand has ever deflated so fast.