In introducing the concept of Fidelity and Convenience Traps, I wrote that traps are where a firm is stuck in when its strategy and innovation are aligned with one factor while the market as a whole prefers another. These traps are a result of relatively stable preference (stable over a longer period of time) of large segments of the market for fidelity or convenience while the firm’s resources are committed to and tied up with convenience or fidelity.
I also hypothesized that the market’s needs switch between fidelity and convenience over time. This is not a high frequency switch that happens over a very short period time. The switch happens over a relatively long period of time (1 to few years) and in between switches there is a stability. It is the stickiness of the preference and the slowness of change that cause the traps.
These long run trade-offs are much different from the short run trade-offs we make everyday. These short-run trade-offs do not result in traps. Take for example eating pizza. It is a Friday evening, you and your family of four are considering dinner options. Your children decided it is going to be pizza. On a 0 to 100 scale, rate each of the following options (0 – extremely undesirable, 100 – extremely desirable)
- Pizza delivery from local pizza chain for $25, delivered in 30 minutes
- Two frozen pizzas at $5 a piece, that you already have in your freezer, add fresh toppings of your choice. Total time 30 minutes.
- Make pizza from scratch, with all fresh ingredients including fresh buffalo milk mozzarella for a total cost of $12. Total time 2.5 hours.
- Head out to a highly rated pizza place that serves authentic Italian thin crust pizza in a wood fried oven with all fresh ingredients. Total price $55 and drive time 30 minutes, waiting time 30 minutes.
- Head out to local all you can eat pizza buffet place with all standard pizzas made with packaged and frozen ingredients. Total price $28 and drive time 5 minutes with no wait time
You can see that high quality ingredients and special oven make the pizza very high quality – or high fidelity. A frozen pizza or a delivered pizza are not the highest quality but provide great convenience. There is also the price – that pushes people to til either towards the fidelity or convenience end of the pizza spectrum. The score people assign to these options is referred to as its totality utility. Different people get different utilities from the same option and even for the same person the utilities for a given option will vary with context. The choices are not stable, highly unpredictable and vary over short time periods (even within a week).
In other words different segments of the market, at different times (within a short time frame) switch between fidelity and convenience. This is the short run cycle and does not represent a stable preference by a large part of the market over a relatively long period of time and hence there are no traps.
Short run cycles do not cause traps, only the long run cycles do.
In the coming weeks, I will write more on modeling the short run and long run cycles.