Industries With Four Price Points
Both the greetings industry and the securities brokerage industry offered late 1990s examples of markets with all four Price Point specialists in the industry.
Greetings Industry Example: The Standard Leaders in the greetings industry include Hallmark and American Greetings. Together these two companies command over 70% of the market share in their industry. Each company sells a broad range of greeting cards, with the average card priced between two and three dollars.
Some customers would like to spend more money to send a higher value greeting. These are Performance Leader customers. They might choose the Balloon Lady listed in the local Yellow Pages. Balloon Ladies arrive at the recipient's door in gaily-colored costumes, bearing helium filled balloons and singing the greeting. This greeting creates a memorable occasion. It does so at a much higher price than the cost of sending a traditional paper card. As a result, Performance Leader greetings, like those of the Balloon Ladies, hold a miniscule share of the Greetings industry.
How about a customer who insists on spending a lot less than two dollars for a greeting card? This Price Leader customer might choose to shop at one of the deep discount card shops dotted throughout the country. These shops sell cards for less than half the price of the average card sold by Hallmark and American Greetings. Their cards' artwork, editorial content, and paper qualities are substantially below those of cards offered by the Standard Leaders. The low priced card shops are few in number and may not be well located. But their very low prices do appeal to enough customers to give the Price Leader group of suppliers a single digit share of the total market.
The advent of the internet has given birth to Next Leaders in the greetings industry. These companies include Blue Mountain Arts and E-Greetings. These internet-based greetings providers offer animated greetings, with sound and personalized messages, sent over the Internet from the convenience of the sender's personal computer. Next Leader greetings companies offer some wares for free and others for low annual subscription fee. These Next Leaders have a business model that lets advertisers pay for the free greetings. This value package does not appeal to every customer. Many customers would prefer to send a traditional paper card. However, the electronic greeting does appeal to a substantial, and growing, niche of customers in the marketplace. These customers have personal computers, and are comfortable with the internet. The electronic greetings market is already several million customers strong and continues to grow at better than 20% a year. It is establishing itself as a new emergent industry.
Securities Brokerage Industry Example: The securities brokerage industry for individuals offers another late 1990s example of an industry with all four Price Point specialists competing for a share of the customers' purchases. The industry standard is a traditional broker, who recommends investments to his customers and trades securities on their orders. These traditional brokers work for Standard Leader companies like Merrill Lynch and Morgan Stanley Dean Witter. For more money, the customer can receive more extensive personalized attention from a money manager, a registered investment advisor. These advisors are the Performance Leaders in the industry. The Securities Brokerage industry also has Price Leaders in the form of discount brokers. Discount brokers traditionally have not offered advice and are spartan in their services. But their prices for a trade are a fraction of those asked by traditional brokers.
The late 1990s witnessed the rapid emergence of the Next Leaders in the industry – online brokers. These Next Leaders appeal to a niche in the marketplace. Their niche customer is computer literate and investment savvy. Next Leader companies include E*Trade and Ameritrade. These companies offer customers some benefits previously unavailable to the average investor. These benefits include instant access to account information, sophisticated research materials, and online account processing. The cost structure of the online brokers is built around scaleable computer and software infrastructure with limited personal attention. This low-cost structure allows the online brokers to charge trading fees substantially below both those of the traditional Standard Leader brokers. In fact, their prices are below those of the Price Leader discount brokers. These Next Leaders are creating a new emergent industry. Some of the leaders in this new industry barely existed a few years ago.