Saturday, March 12, 2011

Observations from Street Markets - Alpha

From Bogota to La Paz, I've been through more than a dozen cities with street markets, from permanent concrete stalls to wooden booths and tables in a plaza.

Some observations:

1) Markets are omnipresent and part of human society everywhere. People want to buy, sell, and trade goods and services, from food items to clothes, gadgets, and dead llama fetuses (strange to see iPads selling next to dead llama babies and fetuses). I think the desire to trade comes from the primate desire to be social and engage in reciprocal relations (see the work by evol. biologists, like Trivers). Open and free markets are a natural, sociological phenomenon. Anti-free market voices are delusional ideologues (with some truth when they attack crony big company capitalism).

2) You can bargain for anything, esp. if you buy in bulk or the seller is having a bad day and wants to make a quick sale (and you pay in exact cash). All negotiations are contextual, but there are some basic rules (important to know your BATNA and the other side's goals/constraints).

3) Sellers need to develop market niches: I've seen dumb sellers selling the same thing in 7 stalls next to each other. Smart ones differentiate on price, service, or retail presentation/orderliness. Even smarter ones find small niches, selling only jeans, candles, paper goods, etc. Getting the right retail mix to minimize your customers' transaction costs is hard (if you're too narrow, buyers need to go to other places and so may prefer an omni-mart).

4) Niche clusters are part of markets: For example, all the optical stores are near each other, as are all the jeans stores, the pharmacy stores, etc. Clustering is normal and in some ways reduces transaction costs (easy for buyers to compare sellers on different criteria). But there's also an element of dumb herding to it. I think it makes more sense for wholesaling or professional services than basic retail.

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