Tuesday, June 23, 2009

From Steel to Gold - Part II

I realized that the themes surrounding the movement of products and services along the Utility-Luxury grid require a bit more analysis. So I will dedicate one or two more posts to try to dig deeper into this topic.

I've been thinking about potential catalysts that might spark a movement between any of the four squares shown below (in Part I). Here is what I've come up with so far:
  • The introduction of new substitutes. This explains what happened with the wristwatch. As mobile phone penetration grew, the watch's practical value declined.
  • The introduction of new complements. This partially explains how the Internet became a very valuable tool. With the development of better modems, networks, and more powerful personal computers, the Internet's potential usefulness and appeal grew.
  • Increased ubiquity. This of course begs the "chicken or the egg" question, but I believe that the growth of the Internet's ubiquity strengthened its network effect and thus created a positive cycle that continues to push the Internet up the Utility line.
  • Changing tastes and norms. This drives movement in a lot of industries, especially in fashion, art, and cuisine.
  • A change in the level of scarcity. This is pretty self-explanatory. For example, certain types of fish are now a luxury due to a decrease in their population.
  • Laws and other government regulation. The legalization of narcotics would most likely decrease their price and thus diminish many of their luxury-qualities.
  • Demographic changes. As the population ages at a faster pace in the U.S., Florida real estate might become more of a luxury.

I'm sure that I've only begun to scratch the surface. What other catalysts for change can you think of?


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