Thursday, August 25, 2005

Is it ever right to create barriers to competition?

Ultimately any company is in business to satisfy some customer need. Sometimes we say we are in business to satisfy a customer want, this might be a game a semantics, “want” versus “need” – the same or different?

To my mind a “want” is something less than a “need” – I need a new pair of shoes, but I want a pair of Adidas trainers (sneakers to any American out there). Actually, for many people in modern society the concept of real need is rare, for example, I have several pairs of shoes, and I usually replace them long before they are unwearable so the concept of me needing a pair of shoes is subjective. But I digress... back to what I was saying.

Another way to phrase the ultimate business objective is: we are in business to solve some customer problem.

Whether we are solving a problem for a customer, or providing them with something they need we are able to charge money for the product or service. We have some ability that the customer lacks – either through choice or circumstance – and they are prepared to pay for us to solve it.

Now this leads me to ask: Is it ever right to create a barrier to competition?

I'm not talking about a moral question here, just a practical one.

If we are in business to solve a problem or satisfy a need then taking time out to create a barrier to the customer going elsewhere is a diversion. Surely we should concentrate on the matter in hand?

Yet we often hear talk about companies creating barriers to entry, barriers to switching, barriers to competition – these ideas are contained in books, business literature and taught in business school.

But do barriers create value?

At the moment I can only see them detracting value from the customer. They might create value for the supplier but we should remember to count the cost of creating the barrier. And that begs the question: could the same resources have been used better elsewhere? – improving the product say.

Lets turn the question around: if I’m a competitor and I come across a barrier constructed by my competitor should I spend time and money over coming this barrier? Perhaps, given my comments above the answer is obvious: No, don’t bother, find out what the customer actually wants, improve your product or service, you’ll better match their need – and as a side effect you’ll create a different kind of barrier to the other guy.