The goal of any business is to achieve a monopoly – to become the uncontested supplier of products/services to its chosen audience. Monopolies are very profitable.
What is often overlooked is that there are “good” monopolies and “bad” monopolies. “Good” monopolies exist where there is actually an open and competitive market for a given product or service, but a single company has developed such a compelling value proposition that it enjoys an effective monopoly. Think Google in search, or Apple in MP3 players. Both have plenty of competitors but each has so delighted their customers that it is almost as if they have a monopoly.
“Good” monopolies generally come about through superior technology or a superior service (think Zappos). They are not monopolies in the legal sense of the word (the absence of competition) as customers have the choice of buying a competitive product or service – but choose not to. The “monopoly” is the product of a domination of customers’ preferences.
“Bad” monopolies are when the customer has no choice (think NYC apartment building with a single cable provider or airline on an uncontested route). The problem with “bad” monopolies is that the company can ignore the preferences of its customers because it knows that they are captive (think cell phone service contracts). Even if the company does not actively abuse this monopoly, customers will resent the asymmetry in their relationship with the company and the fact that they have no choice.
That is why it is really hard for a company with a “bad” monopoly to enjoy a high level of brand equity. Brand equity is about customer preference – and it is hard to have preference where there is no choice.
But the simple truth for most businesses is that it is cheaper to develop ways to make customers captive than it is to find ways to continuously delight them (and so maintain a monopoly on their preference). This is a significant source of tension between marketing and finance. Marketing wishes to achieve a “good” monopoly (by making sure that customers do not want to leave) but finance knows that, certainly in the short run, it is much more profitable to focus on creating a “bad” monopoly (by making sure that customers cannot leave).
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That’s a fascinating dichotomy between Finance and Marketing that I’ve never seen articulated so bluntly as competing goals. Is there a compelling way to quantify the long-term value of brand equity vs. the long-term value of dollars earned today from captive customers? Do businesses actually calculate this and decide that “bad” monopoly is their best option–or is it just the chronic demand for short-term results?
Thanks for the comment, Chris. Another way of expressing this tension is marketing’s focus on the numerator of the customer value ratio (the benefit received) and finance’s focus on the denominator (the cost of delivering that benefit). In the long run, the ratio can only be optimized by active collaboration between the two but, in the short run, it is tempting for the two to focus on just their individual objectives (respectively, benefit maximization and cost reduction)
I think this is cool but a little confusing to me but I like it though. <3