This philosophical concept applied to the marketing of the paints and coatings industry offers some guidelines for finding better benefits.
by Julián Restrepo*
In the first part of this article, the meaning of the term "Nash equilibrium" was explained, which is related to a type of imperfect competition equilibrium that describes the situation of several companies competing for the market of the same good and that they can choose how much to produce to try to maximize their profit.
Now we will analyze the relationship of Nash equilibrium with the world of coatings, for which we will consider several reflections:
- Individualism can deprive our companies of valuable profits: if they are motivated by corporate profits as the only premise, this only leads to society paying the price of lack of coordination and anarchy, which can affect the quality of the products offered, since they would seek to have a product with a competitive price in the market, but that, due to the informality of other companies, it must be as low as the market dictates, which can lead to the reduction of the entire potential of the product, forcing these companies to look for raw materials, processes and equipment increasingly economical, and in some cases, to reduce the number of members of the research teams.
According to the Nash equilibrium, the best solution cannot be found from an individual strategy: to decrease the sale price of a product, since other companies will do the same. The best strategy to increase the profits of all companies is to achieve a consensus in the general strategy of these, perhaps, for example, look for opportunities for brand strengthening, or instead of struggling with prices, seek to better guide the customer about what they really require, offer more services, etc.
- The technical culture of our companies, in general, is not accustomed to publishing the results of their research, as they do in other countries. Paradoxically, we also do not have a higher rate of patent applications than those countries that do. However, when the research teams of such companies require articles with a certain technical rigor, they turn to international publications; but when reviewing these authors, we observe that they belong to companies such as Elementis Specialties, Bayer, BASF, Cognis (now part of BASF), etc.
That is, these companies and researchers, despite being developing advanced knowledge and products, consider it very important to publicize their work so that others, rather than knowing them, can criticize or correct them. Comparing both types of cultures, we will see that in reality a technical culture open to knowledge is conducive to greater technical and scientific development.
This situation allows us two analyses: 1) Individualism, interpreted in the context of the Nash equilibrium, gives companies a false sense of advantage in a "competitive game" by a market of paint consumers, and we have already seen that an individual advantage leads to nothing but a Nash equilibrium for all, including competitors; 2) Is it not paradoxical that a technical culture that, for various reasons, including the false feeling that we have knowledge that is somehow exclusive and therefore not made known to the scientific community, ends up resorting to this same scientific community to document or investigate?
- We must bear in mind that we already live in a globalized environment and that really the "enemy" is not the other local manufacturers, since in a global economy, competitors also come from outside and much more bearing in mind that in times of economic crisis such as the current ones, strong foreign companies identify our markets and economies as attractive. Without forgetting that these companies are very prepared and have the "enough muscle" financial to enter and settle in our markets.
- Globalization is also present in the type and quality of information available, since various paint manufacturers have access to materials and information that have not before, which has led to relatively modest companies have experienced admirable growth rates in recent years, providing in many cases products of comparable quality or with a better cost/benefit ratio than those considered industry benchmarks.
Thus, we will realize that each company currently has perhaps its best strategy, which is nothing more than a Nash equilibrium, which would imply that the profit margins of large companies can be comparable to those of smaller companies, even though, most likely, not their level of sales. In any case, remember that our market has grown in recent years and if large companies do not experience a reduction in their sales, this implies that their market share does, thus presenting a considerable presence of emerging companies.
- To better understand the above situation, let's analyze a very colloquial example: A few years ago (say about 15 years), when we were going to eat chicken, we most likely only thought of one answer: Kokoriko (a well-known Colombian food chain), which although it had a higher cost than its competitors, was the option to choose, since it was a guarantee of satisfaction and quality (in addition, there were few competitors at the time.) Today, what is the situation?, if we asked ourselves the same question about where to go to eat chicken, we would most likely not have an immediate answer, basically for a reason: We already have many options and we do not have a single choice!
The same has happened in the paints sector: A few years ago we would most likely choose one or two brands to repaint our house, but currently, the consumer already has many options, has more information and ability to inform, more options to choose from and does not visualize a painting "like a black box", but already many of them understand various technical concepts, in fact, they are more difficult to deceive.
- If our paint market were analyzed in terms of a Nash equilibrium, it would be observed that it is characterized by the following:
1) There are a small number of companies, and each of them can affect the market price.
2) Each company knows that it can affect the market price, but it also knows that the others can also affect it.
3) Different companies have to think, not only how consumers will respond to their production decisions, but also how other companies will respond. Thus, the usefulness of considering such an approach in the marketing of coatings, is based on the fact that not only allows to enrich the possibilities of reflection with novel tools of lateral thinking, but it has already been shown that it is a concept that allows to explain why, when the "different companies" can only take into account the short term, they fall into so-called "price wars" or "trade wars", noting that cooperation is usually "an equilibrium solution" (the optimal solution for both parties and not just for one) [9].
Conclusion
Finally, if we take the contributions of the Nash equilibrium as true, our companies must avoid the "price war", since only the differentiating products endure over time; in addition to the fact that the quality is better for both economic and environmental reasons. And although many companies complain that many others imitate them, we must keep in mind that premise: "imitation is the most sincere form of admiration".
References
[9] Fonseca, P. Nobel Prize for Game Theory. The Nación.com (2005, October 10).
* M.Sc. Ph.D. Factory Service at PPG Industries Colombia Ltda. Find out more about this article by writing to [email protected]
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