15/07/2014 - 05:46

Business, politics as close as ever

15/07/2014 - 05:46

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Consumer behaviour plays out in business much as it does in the political sphere.

Business, politics as close as ever
HEAD HONCHO: A the head of the state’s buggiest business, Colin Barnett is responsible to all ‘shareholders’.

Last week, Premier Colin Barnett described himself as the CEO and chairman of Western Australia's biggest enterprise – the state government.

That's not a completely unfair analogy. Perhaps the biggest difference between Mr Barnett and the head of even the biggest companies is that he gets to make the rules he operates under more so than any other CEO.

Longevity is one area in which the drawing of parallels between the private sector and government is less accurate, however. Due to the nature of democracy, it is rare for parties of any particular hue to remain government for more than two or three terms.

Mr Barnett rightly ascribes this to the accumulation of decisions viewed as negative by the electorate. I have long held the view that politics is death by a thousand cuts; each time a policy is announced, someone dislikes it because they lose or they philosophically disagree with it. Once a voter feels strongly enough about that particular decision they will change their vote, and it seems hard to reverse that.

The longer a party is in government, the more inevitable change becomes because of this.

Business faces nothing like this. Or does it?

While no industry that I can think of has any form of electoral cycle that means they win or lose absolutely at the end of some defined period, all face the accumulation of ill will that costs them business just as it costs governments power.

For most business, the world is huge and the market vast. As they grow from selling their first product or service to their first customer, they win or lose clientele along the way by outperforming their predecessors or levering-out incumbents.

Because (in most cases) demand is so much bigger than any single company's ability to supply it, a company will continue to grow and thrive so long as its customers have more positive outcomes than negative ones.

Of course there are variables, such as the cost of acquiring a new customer, which makes this profitable win-loss ratio different from industry to industry but, in general, growth is the key.

Established political parties in most Western democracies such as WA have no such room for growth. The market, bar immigration and population ageing, is near stagnant. Generally speaking, peak demand is just before a party wins an election, usually its first for a while, and then slides from thereon until the opposition wins and the cycle repeats.

Occasionally a new player enters the scene, such as the Palmer United Party, to meet a new form of demand, but they too eventually face the same problem, often without getting into power but merely by influencing it.

In the business world, the closest I come to that kind of issue is in sectors dominated by duopolies, or oligopolies.

Take the supermarket sector, for instance. For years we complained that our local grocer was never open, charged high prices and didn't offer choice. We welcomed the arrival of big supermarket chains. As demand shifted to this new supplier, the small grocer largely went out of business.

The supermarket chains were so successful that they now dominate the whole market.

In a way we have a grocery sector that resembles the political landscape. Coles and Woolworths are like the major parties – many say you can't tell them apart – with IGA representing a significant but minor part of the market, like the Democrats did, the Greens do today and PUP might well in the future.

You could say the same for banks, airlines and many other mature, sophisticated, retail industries.

Just as with politics, consumers act like voters. They tend to stick with something till it annoys them or lets them down. Then they might shift to the next most obvious alternative, although they might find the experience similar.

Occasionally they'll try a very new offer – splash out with something fancy, whacky or very alternative – but unless that supplier provides positive interactions consistently it won't keep them for long.

Generally, over time, if that alternative supplier can be consistent and grow it will tend look and feel like its bigger competitors anyway, especially if the big guys adopt some of its once unique offers.

So we consumers learn that, for a reliable and less risky or less expensive experience, we revert to the supplier that consistently delivers.

And while in business we don't see a winner-take-all scenario as we do with the taking government come election time, or a preferential selection system, the underlying theme is that still a lot of the same consumer behaviour is at work.

The Emperor?

As for the premier's comments that the 'Emperor' tag occasionally applied to him is disrespectful to the office of the premier and belittles WA on the international stage – I have to disagree.

Firstly, few premiers have played the foreign affairs hand as well as Mr Barnett. If as a result of his successful travels and congenial relations with foreign powers he is seen as something of a head-of-state, what is wrong with that?

Secondly, I doubt that the mass-market local press that uses this terms gets much of an audience elsewhere.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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