Unfairness is ripe for disruption. Everyone hates being exploited and companies that do it to their customers feel their wrath when the ruse is unearthed. This usually happens when another option comes along and increases transparency within the transaction. In a system like this, the customer is spring-loaded to switch to the alternative when they realise they are being duped.
I define an unfair company-customer relationship as one where the company deliberately masks the real cost of an item. As a customer, you know it’s happening when quality falls whilst prices keep going up, and yet you still keep buying it. This is often referred to as ‘pricing power’, but in my mind pricing power is most powerful when it is sustainable, and it is most sustainable when the customer participates in the upside.
As a student companies repeatedly took advantage of me. Which is why I don’t feel sorry for them today as they suffer terminal decline. Let me take you back to 1997…
- Record labels and music shops: Music CDs cost £15 per album;
- Book shops: Academic books cost of £whateverthepublisherswanted;
- TV companies: Limited channel options, average content, expensive cable movie options and an ever-increasing number of adverts to suffer through.
As a consumer, I hate being ripped off but I love companies that offer me price transparency and choice. Today there is a cohort of global internet platforms that have used fairness – particularly price transparency – to disrupt incumbents. They are maligned by traditional media (which they are disrupting) yet Google and Facebook, for example, bring us price discovery engines and a vast range of entertainment offerings and consumer goods at a transparent price. And they bring it now… or next day delivery.
These businesses are powerful because they empower their customers. We own them in the Kames Global Sustainable Equity Fund in part because of this, and we look to own other companies that exhibit the same sustainable characteristics. We also invest in:
- MarketAxess: a bond trading platform which is increasing market efficiency and price discovery in a historically opaque market;
- Tencent: Chinese social media platform embedding entertainment and digital payments in a seamless and transparent way;
- AutoTrader: No longer owned in the Fund but a great example of price transparency empowering the consumer, and getting-one-over on the stereotypical dodgy used-car salesmen.