Could The Retail Industry Save Itself Using Game Theory?

In my previous post on whether the Christmas Sales have destroyed hopes of a retail recovery, I discussed how retailers have exhibited classic non-cooperative behaviour. By focusing only on individual interest and survival, their collective actions have likely damaged their entire industry's market size. By encouraging people to spend their liquidity faster through low prices in over-competitive price wars, people now facing redundancies will run out of spending ability much quicker, and retailers give themselves no time to be able to adapt to reducing market sizes and changing consumer need.

Retailer actions thus suggest a basic lack of understanding of collective strategic options. Even just a basic group recognition of Game Theory might have helped. Game theory attempts to model behavior in strategic situations, where players interact and make decisions to maximise their returns based on each others choices - arguably leading to optimal behaviour for all. The classic example is the 'Prisoner's Dilemma' which involves two participants who can either benefit together or suffer together. However this is a zero sum game and rational behaviour in this model is self-interest, so consequently the optimal solution is never chosen.

In a normal situation the retail space would probably be modelled as a non-zero sum game. One firm's success does not necessarily mean losses for everyone else, because that success may increase the general size of the market to mean success for all players. However in the current economic climate, it looks more like there is a finite and decreasing amount of money that people have to spend, and therefore a limited resource available to all players, bringing the situation closer to a zero sum game.

For retailers, what Game Theory therefore suggests is that the players can either try and maximise their own gain, in which case some will come out well while others do badly, involving high risk for everyone; or they can all cooperate strategically to all do a little less well but significantly minimise each player's risk of severe failure.

What retailers should have done, is considered working together to keep prices sensible, and thus manage both the market and their ability to stay alive long enough to change with the environment. On balance, all companies who aren't over-leveraged, would benefit and be better off as a group.

Trying to gain maximum benefit for themselves however, probably means that many will end up with little or no benefit at all as their behaviour helps ensure the market collapses. Unfortunately we must accept that historical competitive and non-collaborative behaviour means that there's very little realistic chance of retailers co-operating like this even now, so we should probably start preparing for further insolvencies and more job losses.

Have the Christmas Sales Destroyed Hopes of a Retail Recovery?

It is finally January and the industry is slowly recovering from the Christmas frenzy. The smoke is clearing to leave retailers facing the start realities of 2009, and the January slowdown is giving businesses time to reflect on the follies of collective price-slashing hysteria.

Personally, I have a feeling that the unprecedented reductions in the 2008 Christmas sales are going to accelerate the bankruptcy of most retailers, rather than saving them. I believe this for two reasons.

1. Slashing prices might mean that stock continued to be shifted even under the heavy shadow of the credit crunch, but there were no margins to be made, and consequently most retailers suffered heavy losses. When the next quarterly rent comes round, many of these retailers are now going to have even fewer funds to cover their payments. With the banks still not lending, we should expect an explosion in businesses going into administration.


2. The crazy prices encouraged people to throw their money at all sorts of products they didn't need, and will thus have significantly reduced consumer liquidity. In early December, the credit crunch was only just beginning to effect people outside the financial industry. After a few years of boom time, with life carrying as usual for most people, the buying figures show a distinct lack of prudence on consumer behalf. As the above businesses go under, many more 'common' people are going to lose their jobs. When they do, any spending buffers they might have had will have disappeared with their Christmas extravaganzas. For the retailers that survive the next quarterly rents, this means that their sales are going to drop even worse than they could normally have expected. This in turn could see many of the early survivors go down too.

Long and short of it is that by indulging in short termist price wars, retailers have simply dug their own graves.

Is The Future Of Business Going To Be Telepathic Technology?

Let's kick off 2009 with a bit of exciting futurism! Here's an interesting talk on advances in cyborg technology and what it might mean for business.

Is the future of business going to be telepathic technology? Will people be able to pay for stuff simply by connecting electrodes? Are we going to need computer screens or will we shift to 3D or sensory electronic shopping? What will it mean for web or ecommerce design? Will it mean the end of the mobile phone if we can simply receive signals internally? Have a listen and see what Kevin Warwick thinks...

Facilitating Innovation Through Knowledge

A key element in the success of organisations is their ability to capture, manage and share knowledge, learning and best practice amongst the workforce. However knowledge is often confused with information, and thus organisations typically address the issue by implementing mechanisms for collating documented information and making it available for people to access. (See my earlier post on Developing Knowledge Sharing Communities for Business)

What this usually results in is some form of electronic library available through intranet or shared folder access, but little or no attempt to encourage discussion and evolution of that information for wider organisational use. People are left with the responsibility of connecting disparate bits of information into appliable knowledge. The amount of effort needed to do this is often prohibitive and the result is that people typically ignore the majority of information available to them and organisations are unable to leverage the pools of knowledge they hold.

Studies show that innovation arises at the confluence of knowledge from different fields, so in economic downturns like this, surfacing and sharing knowledge could be a crucial factor in survival.

In light of that, here's a quick look at the different avenues that people use to find and engage with information.

5 Tools To Track Social Conversations

As more and more business begin to appreciate the value of managing and monitoring social conversations to build their brand and reputation, marketers are beginning to move away from focusing manual search, monitoring, trafficking, and tracking. Instead, many aggregation and tracking tools, in addition to stealth services not yet launched, are not only helping track keywords, but also monitor conversations across the networks and communities that you know and don't know. They effectively map, engage, and manage participation efforts allowing businesses to start to implement and benefit from CRM-style (customer relationship management) dashboards and hubs to streamline internal and outbound communications.

Here's 5 tools you should be looking at as you develop your own social marketing strategies

1. BuzzLogic
2. Radian6
3. BuzzGain
4. BrandsEye
5. Brandwatch

(Taken from Brian Solis' post on the state of social media - http://www.briansolis.com/2008/09/state-of-social-media-2008.html)

Financial Sustainability

If you're wondering why there hasn't been much posting activity for the past week or so, it's not because I've hit writer's block. The past few weeks have been a whirlwind of activity, between deadlines at work and trying everything possible to ward off insolvency for one of the charities I'm involved with. I'll put up some of the things we've learnt once things ease up. Hopefully find out this week if my efforts have come to anything.

The credit crunch is playing its part here, and safe bets suddenly look like big risks when there's no margin for error. The real challenge has been trying to create viable commercial revenue streams for a charity that traditionally hasn't had any. A lot of lateral thinking later, we might be getting somewhere. The difficulties lie in financial modeling for a space that hasn't really got much else to use as reference.

Moving a charity from being grant dependent to becoming financially sustainable requires more than just identifying revenue streams. It requires a change of focus and ways of working. It requires new management skills, and new engagement skills. Dealing with corporations is a whole different exercise to dealing with government or third sector bodies. Lots of challenges but exciting nevertheless. Where there's a will there's a way... and in this case there definitely is a will!!

Watch this space for an overview of what I'm learning about the realities of financial sustainability and business remodelling in the third sector...

Life After The Credit Crunch

Here's a presentation with some great observations on life after the credit crunch, collated by Ines Seidel.

Life After the Crunch

View SlideShare presentation or Upload your own. (tags: social life)

In summary, there's the things we already know like there are more fears, and people are cutting down and shopping more frugally, but what I really like is that she has drawn out some personal things like the fact that people are discovering family as they look for more free things to do, and kids are learning to accept no for an answer.

For fashion retailers however, there's a great point in here about the need for clothing that will survive trends and frequent use over the next couple of years.