High Quality vs Low Cost Bargain: The Current Dichotomy! (I)
Welcome to 2021!
Such a year of promises to recover from the COVID19 last year! All over the world we are expecting that this year will be much better than last one. That 2021 could be a turnaround from a crisis that has kept us not just afraid, but has broken us during the last year. 2020 also has forced us to appraise our priorities. And to many, it also has challenged us to find new manners to keep our businesses running in the middle of despair.
I wouldn’t be here writing about pricing strategies, if the COVID19 wouldn´t have arisen. I hope many economists, business specialists, corporate strategists and academics´ gurus have been rethinking their paradigms, because this pandemic can´t be taken for granted in the context of the current globalization state of affairs. I believe the pandemic, provided us time to reflect about the good and the delusion of the market dynamics difficulties that each country is experiencing at a local basis vs global. Free trade on a global basis has impacted our local economies and pricing strategies, in a way that COVID19 just came to demonstrate us how much have we walked the talk of the national competitive advantage economic theories. Maybe this period of history has come as a blessing to rethink about our imbalanced global economy. If you are a loyal reader of Eleonora Escalante Strategy publications, you already know that it is better to philosophy or do strategic reflections, in order to establish proper solutions. Instead of waiting for a much disturbing global economic crisis, in which it will be impossible to recover without considering conflicts or future wars because of remarked social inequalities, tech terrorism, climate change destruction and racism.
The saga “High quality vs. Low-Cost Bargain: The current dichotomy” goes beyond a pricing strategies story. We expect it to be academic, but at the same time simple. To make you re-evaluate your thoughts when it comes to the core of our global problems in trade and economic growth. We are still handling a legacy from 1817, an inheritance from David Ricardo and Adam Smith theory of Comparative Advantage. Ricardo´s theory has been outstanding for 200 years as the major outstanding flag in our economies. The economists including strategists have followed the theory of comparative advantage (with its further reviews) for more than two centuries. The coined phrase: “The potential world production is greater with unrestricted free trade than it is with restricted trade” has been the motto for globalization. But at the time of David Ricardo´s theory our science and low technological advancements (compared to what we have now) were the real restrictions that helped to keep the assumptions of free trade as beneficial for tous. At the moment, 200 years later, we have to recognize that the current technologies grouped under (1) NAIQIs (Nanotechnology, Artificial Intelligence, Quantum Supremacy and the Internet), (2) the economies of scale reached in logistics, (3) our addiction to the Smartphone, (4) the social media instant messaging and its powerful boom box viral communications and our lack of regulation to all the latter factors, have disrupted not just a single industry but the whole global economy.
It is time to re-conceive our notions when it comes to global market dynamics. Not because we still have a choice to do it as our economists and strategists role, but because the philosophy or premises for a successful cross borders trade and economics (based on David Ricardo´s legacy) is way behind the status of the current NAIQI disruptive technologies. Under this unbalanced scheme our excessive implementation of free-trade without any type of regulation to local economies, are not beneficial for everyone anymore. Twenty year ago, not even the new trade theories of the 70s and the 90s, neither Porter’s theory were able to see the impact of the implementation of the competitive advantage (based on David Ricardo´s theory) at its whole deployment. Now we are reaping it. Twenty years ago, no one knew if Porter´s competitive advantage theory was going to be correct. But without empirical testing it was rolled out, and right now we are standing in a blurry context in which, we will have to pause, review and correct before proceeding further with all our technological innovations.
The Porter´s philosophy based on the theory of comparative advantage was implemented during the last 20 years particularly by multinational corporations and by those who invested in the China´s economic model. Without any testing, it was deployed fully all over. The present-day dichotomy between high quality and bargain pricing that will be deployed in this saga, won’t be able to be solved “fairly” for the benefits of all the producers of goods and services. Those who sell cheap things, those who sell medium average prices, and those who sell high-quality (practically all the high quality artisan and traditional artistic hand-made industries are in risk to perish). The bottom line is to measure what type of society do we want, one in which our human creative empowerment ignites the NAIQIs that will trigger our own destruction as a human civilization; or one in which we can use technologies with moderation (under our control) keeping our world in balance, and still keeping the high-quality empowerment.
NAIQI Technologies at expense of our human capital development. The velocity in which the NAIQI technologies has inundated the global economy has been so huge, in comparison to the velocity in which the local countries have been installing excellency of education, public spending in high-quality social public infrastructure and investing in research and development. To grasp an idea, the ratio is at least of 100 to 1 when it comes to that comparison. For Porter´s theory success, the only way in which his national competitive advantage can be successful is by investing to upgrade human capital and advanced factors of production (better training and long life learning for employees, commitment to elevate research and development at the private and public sectors, investing in high quality education of teachers and students, infrastructure, etc). But this has not happened in developing economies. Still more 74% of the global population suffers of multidimensional poverty and the middle class is still a baby social group, too fragile and vulnerable (only 12% of the global population). All the wealth has been invested in technologies, at expenses of developing the mindsets of the individuals that should be entitled to manage the technologies, not the other way around.
Nevertheless with the COVID19, in our quest to protect our health, we, the developing nations are being forced to sacrifice all the latter preparation of factors of human capital development. In addition, with the COVID19 crisis, the high-quality empowerment is being thrown to the garbage, because an economic crisis of this size touches all our pockets. For the middle-class particularly, even if we wish to buy high-quality expensive products, it is not possible to do it, because we don’t have the money to pay for it and support those lovely artisans who design and create top high-quality. For developing nations, this shift to low-cost bargains will convert us much more in mediocre societies waiting for the next Zoom course or the next invention coming from the advanced nations. Instead of being creators of our own high-quality empowerment, we will become takers of anything that comes through Twitter, or Facebook, or Youtube, or Snapchat or Instagram… Can you observe where are we going? And social inequality will raise. For developing nations, it will take at least 100 years to begin to create our own innovation empowerment if we rely “only” on digital tools to get educated. Our brains don´t develop under a “taker” information mood, but only when we are “creators and researchers” of our own innovations because there are needs and wants to be solved.
Digital Pricing Transformation is not the key to solve our economic dis-adjustments. By the end of this saga you will also understand why to emigrate to digital pricing strategies in the context of our times is not the solution to our economic global troubles. To emigrate to digital is like providing a painkiller to someone who has a cancer. The painkiller acts as a palliative, meanwhile the cancer will continue to grow behind scenes, just to show up later, with a terminal condition.
Anyway, my aim for today is simply to introduce some thoughts about this saga. It will last no more than a quarter of the year (max three months), so before Easter we will be done. We will commit to post two times per week, mainly Tuesdays and Fridays, but this is subject to change if by any reason, I must write on a Monday or a Thursday. I promise that I will try to stick to my schedule. The outline of this saga is shown below:
If you wish to download it in PDF click here:
Wishing you a lovely week, see you this Friday. Again, happy new year 2021. Thank you for reading to me.
Disclaimer: Illustrations in Watercolor are painted by Eleonora Escalante. Other types of illustrations or videos (which are not mine) are used for educational purposes ONLY. Nevertheless, the majority of the pictures, images, or videos shown on this blog are not mine. I do not own any of the lovely photos or images posted unless otherwise stated.
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