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Bringing Theories Down to the Earth

How time flies! It’s been three weeks since we arrived in Jagna, Bohol. Apart from daily life here, in this blog, I would like to reflect the business consulting project into which my partner Olivia and I have been pouring lots of efforts. The most inspiring thing in the whole procedure is that the theories, principles, and sayings that I learned from the textbooks or other reading materials could be put into practice and make some difference, which gives me a strong sense of fulfillment. Here I would like to share three typical examples of it.

1) “No one is designed to remain in poverty, but they need to be led to a proper business plan.” (from Poor Economics)

Before I started the program, I thought that it would be tough work because of some stereotypes about the micro-businesses that they take things as they are and refuse all the innovation. We started to get a full understanding of how this micro-business works, bit by bit. Gradually we figure out the profit model, their unique advantages, the cost structure, what the upstream and downstream of the industry chain looks like, the relationship between competitors, and their own ideas for the future. I found that instead of “knowing nothing,” they lack particular guidance and some basic general business principles. For example, when I found out their most significant advantage is the possession of a credit card while most of the local residents don’t, immediately they suddenly realized that credit card not only can be used to make a ticket reservation, but can also be used to book the hotel, travel tickets, and even international online shopping. In the first two weeks, we learned almost all the information about the store, and this process was a mutual inspiration, not only for us to make suggestions, but also for the owners to do a better job.

So from my perspective, the critical point is to integrate and communicate. If we could stand in their shoes and think about the issues, suggestions will not be rejected as worried.

2) How to save the competitors from the Prisoner’s Dilemma?

When we conducted a survey about competitors of our business, pricing is one of the mentionable issues. Here I only take service charge of airline tickets, for example. We have four competitors in total. The overall location layout is that V&S and 4C’s are inside the market (both on the 2nd floor) while the other three are outside, either near the highway or near the port. They have an unwritten agreement that all of them charge php200, but V&S is an exception because of its “Outlet” nature, which charges php150. The tricky part is that 4C’s secretly lowered the price to php125, intending to attract more customers, which broke the current equilibrium. However, the owner of 4C’s seems not to know the mechanism of elasticity that even if they lower the price, the increase of sales is not necessarily enough to cover the loss caused by the decreasing price. It depends on how customers rely on the store. Moreover, unfortunately, they suffered a continuous decline in the last year, with high costs of Air-conditioner and hiring employees worsening the situation.

As surveyed, those charging php200 mainly serve walk-in customers due to their excellent locations. As for V&S and 4C’s, their position is relatively “hidden” inside the market so that most of their customers are regular and sticky ones, which means that with their existing marketing strategies, the number of customers is somewhat fixed if the prices don’t change surprisingly. In such a situation, lowering the price is less than a wise choice to attract more customers. Instead, 4C’s should think of other strategies in terms of the expansion of service types and marketing skills. For examples, V&S allows delayed payment while 4C’s does not so that it could be a direction that 4C’s makes improvement. However, such “improvements” are far from saving competitors from so-called “Prisoner’s Dilemma.” When the “Price War” stop, there would be other wars related to homogeneous competitions. One of the critical parts is to establish its own unique advantages against the competitors.   

3) From “Red Ocean” to “Blue Ocean.”

After we have an overall knowledge about V&S’s business model via 2-week investigation, we started to make relevant suggestions, which could be roughly divided into “improvement part” and “innovation part.” The former part is about cutting the expenses, amending the recording system, and improving customers relationship so on so force. These are vital to the daily operation, but still stops at existing scale: ticketing, which is called “Red Ocean” because in such industry the total volume is restricted, the regulation is written and what every competitor does is no more than fighting for more shares.

By contrast, the latter part is about expanding the boundaries. In new territory, the pioneer makes rules and grabs most of the profit. That’s what we want our business to be. We absolutely pay more attention to innovations. The first step is to know our value proposition, then is to learn about what our competitors are doing and what still remains vacancy in the supply side. Finally, we brainstormed about adding new services to current scales, such as making vans owner and local hotels our cooperative partners, and even gradually transforming itself into a totally new business entity. Only combining the two parts could we make a completed proposal which balances short-term and long-term goals.

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