The Market Is Written by Winners

Modern people live surrounded by countless products and markets. We take the products we consume and the markets that sell them as entirely natural and self-evident. Yet beneath this seemingly natural and obvious reality lie the arduous challenges, failures, and success stories of countless entrepreneurs.

Before supermarkets appeared, stores looked completely different from what they do today. They were much like the closed-stack libraries of the past. In a closed-stack library, a patron would submit a book request slip listing the title, and a staff member would retrieve it from storage. Likewise, in older stores, when a customer stated what product he wanted, the clerk would make the customer wait and then bring it from the storeroom.

As a result, when there were many customers, several clerks were needed, and long lines were inevitable. Taking note of this problem, supermarkets replaced warehouse-style storage with shelves stacked with goods, allowing customers to choose items themselves and pay at the checkout counter near the exit. Since customers selected products on their own, fewer employees were needed. The store only had to process payment for customers as they left.

Innovation, in this way, means trying something entirely new that had never been attempted before. That is why there were also many failures. Before the internal combustion engine for automobiles emerged, numerous inventors went through trial and error with many prototypes. As a result, the automobile evolved into the form we know today.

At least the products and markets we can see today are the winners that survived these tests and succeeded in competition. Even if something was technically successful, it likely could not pass through the gate of competition if it was excessively costly or if safety or environmental problems were not properly resolved.

When pioneering a new market, one cannot approach consumers in a fresh way if one remains trapped by existing concepts of products and markets. When Steve Jobs launched the iPhone, the first smartphone, marketing experts advised him to conduct market research. But he refused. His point was that there was little meaning in surveying consumers who did not even know what a smartphone was.

In fact, the smartphone combined the earlier mobile phone, an internet-capable PC, and an MP3 player, and then transformed them into a touch-screen device. How could consumers possibly have imagined such a thing and answered survey questions about it? Just as Steve Jobs anticipated, the smartphone came to us as an entirely new product that changed the world.

On the other hand, there are also cases in which an obsession with having to pioneer a “new” market nearly caused a company to lose its existing competitiveness and advantage. A representative example is the episode surrounding Coca-Cola’s “New Coke” brand. The story began with the “Pepsi Challenge” run by Pepsi-Cola, Coca-Cola’s rival. Under identical conditions, Pepsi and Coke were each poured into a cup, and consumers, blindfolded, took a sip of each and chose the one that suited their taste.

Surprisingly, the blind test produced a better response for Pepsi. Pepsi then began promoting this result on a massive scale. Coca-Cola was deeply shaken internally. The biggest difference between Pepsi and Coke was sweetness. Pepsi was slightly sweeter than Coke. For this reason, Coca-Cola’s management believed consumers had chosen Pepsi-Cola in the blind test because of its sweetness, and they concluded that the cola market was changing. They launched a new brand, “New Coke,” with much higher sugar content.

But the result was disastrous. New Coke did not sell well. Previously, Coke had still sold better than Pepsi and held a higher market share, but even that advantage came under threat. In a blind test, people only taste a single sip, so they favored the sweeter Pepsi. But they failed to realize that when drinking an entire bottle or can, excessively high sweetness becomes cloying.

From the beginning, Coca-Cola did not even understand why consumers loved it more than Pepsi-Cola. New Coke was scrapped, and the company returned to its original Coca-Cola. That is why it adopted the name “Coca-Cola Classic.” The whole truth of the “New Coke” fiasco was that Coca-Cola had fallen for Pepsi’s blind-test marketing and mistakenly believed the cola market had changed.

The case of “New Coke” is a famous example found in marketing textbooks, but most failures are not well known. Because they fail, they quickly disappear from the market and are forgotten by consumers. In the end, the market is a record of winners. The very fact that a product survives and remains in the market means it has secured consumers to some extent and proven its competitiveness in its own way. But the many products that fall behind in competition and fail to make ends meet withdraw from the market and soon vanish from our memory.

In this way, the market is evidence of human civilization built through competition and innovation upon the knowledge of others. The market was not designed by some dictator or genius; rather, it has gradually evolved through competition and innovation within the market. Hayek did not accept “constructivistic rationalism,” the view that human civilization was created by design. Is that not precisely why he regarded “evolutionary rationalism,” which broadens the horizon by gradually standing on the shoulders of others—as in the development of the market—as rationalism in the truest sense?

Sungbong Cho

Professor, Department of Economics, Soongsil University

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Original title: 시장(市場)은 승자의 기록이다

Author: Seong-bong Jo

Date: 2023-08-10

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=25934