Co-Opetition - Adam M. Brandenburger [50]
3. Do it yourself: become your own supplier to assure supply and create competition.
Bringing in Complementors
Bringing in customers and suppliers is a good idea. So is the strategy of bringing in complementors. It raises your added value. With more complements, your product becomes more valuable to customers. Even better is if the complements are inexpensive. So you want as many complementors as possible in the game competing with one another. The more the merrier.
How do you bring in more complementors? The idea of a buying coalition is suggestive. If you’re bigger than your customers, you can help them do a better job buying from existing complementors. And just as the American Express buying coalition attracted more suppliers into the game, your greater size will attract more complementors into the game and further reduce prices.
We saw an example of this in the Co-opetition chapter with the MacBains and their used-car weekly, La Centrale. The Mac Bains promise to steer their readers to whoever offers the lowest-priced complements—insurance, financing, and warranties. They have effectively created a buying coalition for their readers and, in this way, can negotiate with more potential providers of complements than their readers could do on their own. The result is that La Centrale’s readers save money on complements.
We also mentioned the possibility that auto insurance companies might follow a similar strategy. They could negotiate with dealers to help their customers get better deals on new cars. A few insurers, such as USAA, some credit unions, and AAA (the American Automobile Association), already do this, at least to a limited extent. We think this strategy could be much more widely employed.
Large insurance companies could surely get a better price on new cars than their customers could on their own. While an individual might visit two or three dealers, an insurance company would attract every dealer statewide to bid for its business. An insurance company could go to all the Ford dealers in a state and offer to direct all their customers to any dealer willing to sell at a small markup over cost. Once the insurance company had negotiated this type of deal in one state, it would know what prices were possible and could use that information to help it negotiate in other states.
For car buyers, this would mean no more haggling with dealers. When people wanted to buy a new car, they would just call up the special insurance agent, explain the make and model desired, and the agent would quote the best price and provide the name of the nearest dealers willing to sell at that price. Buying a new car would become a cheaper, quicker, and more pleasant experience. People would buy new cars more often and therefore more auto insurance.
What if insurance companies don’t want to get into the car-buying business themselves? They could still implement this strategy by forming an alliance with one of the existing car-buying services, such as Auto-By-Tel, CUC, or Mass Buying Power.
Either way, insurance companies would see a further benefit. Insurance companies aren’t always appreciated, to put it politely. People give them real money in return for a promise. Most of the time, they don’t see anything tangible in return. And when they do get something, it’s because something bad has happened to them, so at best it’s a consolation prize. Were they to help their customers buy cars, insurance companies would earn their customers’ gratitude.
Bringing more complementors into the game is nice, but sometimes the problem is more fundamental: complements are missing altogether. Video game makers face this problem on a recurring basis. Their next-generation technologies are usually incompatible with the old, so consumers won’t buy the new hardware until a critical mass of software exists. Yet software writers won’t produce games for the new system until a sufficient hardware base exists. You need the chicken and the egg at the same time.
Cheap Complements The 3DO Company is known for