Table of Contents
New time
We have already deeply entered a post-industrial economy, where a large part of the gross product is generated through the provision of services rather than material production. Moreover, material production has surpassed the point where one could judge an item solely by its appearance and specifications. Now, terms like “usability” have emerged, and factors such as reliability, response time, and accuracy of feedback to user actions have become important. Even household appliances or dishware reveal all their “secrets” that distinguish one manufacturer’s products from another and form the basis of added value, not in the store, but at home. How easy is it to wash dishes in this dishwasher? How does it handle a power surge? What is the actual water consumption, and will that light bulb really last for 4000 hours?
With each passing day, the distance between a product and its consumption is increasing. In the past, a product could be evaluated before it was consumed. Only a very small part of the entire economy operated under the opposite conditions: after purchase, customers could gain insight into the product from doctors, hairdressers, consultants, and a few other professionals.
It turns out that all the recommendations from business consultants and economists are becoming irrelevant simply because these individuals grew up and were educated in an old paradigm where consumers had a clear understanding of a product before making a purchase. From this perspective, consumers behaved rationally—they compared options, drew conclusions, and made decisions. However, as we move further into this new era, human behavior increasingly resembles that of a buyer choosing one cat in a bag from several options. Even if we can physically handle a new mobile phone, we are unable to fully grasp how it will actually perform. End products have become complex and difficult for consumers to understand.
The complexity of end products, in turn, means that raw materials must now meet higher standards than before. Even iron ore, which is still an example of the separation of production and consumption, now has so many grades and properties that its actual suitability for a particular production process can only be assessed after attempting to work with it. The foundation of any economy is agriculture. However, it is rapidly transforming from a process of mixing manure with boots into a high-tech industry, where services account for a significant portion of the product’s value. Harvesting is a service. Storing the harvest is a service. Treating with chemicals is also a service. The quality of seeds can only be determined by planting them, and the quality of tomatoes can only be judged by tasting them.
Example
What does all this mean for business? To understand the inadequacy of old business paradigms in the new era, let’s consider a simple example. Suppose a company sells trailers. What does this company actually sell? Trailers? No. Ten other companies sell trailers too. What does the consumer pay for when buying a trailer? They pay for the product itself, of course, but they also pay a little extra for something that allows the selling company to survive. This used to be called “markup” or “commission.” In reality, the seller provides a certain product that the buyer consumes. The manufacturer offers the same price for trailers to everyone (except in non-standard market situations). The buyer will choose a trailer seller based on the expectation of receiving a certain product (which is not just the trailer) for a specific amount of money. This product is vague, complex, and hard to describe: it includes the smile, the time taken for processing, the accuracy in addressing minor issues, and the subsequent service. This is everything that constitutes the “satisfaction from the purchase” for the buyer. And this product has that important characteristic we mentioned at the beginning. It cannot be evaluated without experiencing it.
In the modern world, most products can only be evaluated after consumption. However, if we dig deeper, the buyer is not actually consuming the product itself, which we struggle to describe in words, but rather the differences between similar products offered by different sellers. In other words, what the buyer consumes is what sets a particular seller apart from the rest, and what is most acceptable to them. They choose to pay a specific trailer supplier because it is more convenient, closer, faster, more reliable, more cost-effective, more comfortable, or even more prestigious. They will only be able to assess all of this after purchasing the trailer. But initially, they make assumptions and act based on those assumptions.