Value Add - Price Premium

While creating a philosophy for Cyntax, I have been thinking what kind of businesses can command a price premium. I think the businesses in the value chain that add "unique" value to the end product are the ones where you can ask for money. This is probably as old and as commonsensical as Michael Porter's work on value chains, but realizing it myself, was an achievement.
Let me take an example. The tee shirts business. Three most important components are the supplier, the designer and the retailer. The supplier can not ask for a premium. Simply because he is manufacturing a commodity. There are bound to be many suppliers with similar or near similar offerings and only thing that all suppliers can compete on is the price. A retailer, might command premium if he is a large player and has a ready set of customers. Someone like, say Big Bazaar. But over a period of time, with Internet eliminating all kinds of middle men, a marketer would no longer need a retailer to sell his products. Cases in point being zappos (ok, zappos is a retailer), threadless and cafepress.

On the other hand, if you are someone like Tantra or People Tree or Play Clan, you add value to a basic white tee shirt. You add a unique design and print that design. You dont sell just a tee shirt. You sell this design that no one else can do. And you thus ask for a premium. To compete with a Tantra, I wont need the supplier, I wont need the retailer but I would need a designer. Obviously I am assuming that I would be able to squeeze the suppliers and command terms to the retailers and create a fantastic online community (and a shop).
Tee shirt business is ok. What about travel business? Who will command a premium?
Travel chain has two components - service providers (airlines, railways) and agents (Traditional, OTA). Off the two, agents can only sell the inventory that service providers make available. And its a simple business where you add zilch value (online agents add value in the sense that they make available the inventory real time) and hence they cant command a premium. Moment an agent asks for a premium, the user would move on to the next agent. You compete on mindshare and again, cost!
What about HR consultancies? Petrol pumps? FMCG companies? Who do you think commands a premium? What to you guys think?

No comments:

The Nidhi Kapoor Story

Did you like this post? May be you want to read my first book - The Nidhi Kapoor Story.

Check it out on Amazon or Flipkart?