The Industry

The Principle of Minimum Differentiation March 19, 2008

At Consumerist:
http://consumerist.com/338863/want-a-thriving-coffee-shop-open-next-to-a-starbucks

I’m totally down with Consumerist. Consumer advocacy is a noble cause, and I think they do what they do pretty well.

This, unfortunately, is a poorly researched post. I’m not even an economist, but I can tell you that this is not news. This is merely an example of what the financially-educated call the principle of minimum differentiation.

This principle has two main applications.

1) While it’s valuable for competing products to be different from each other (different features, for example), it’s also valuable for competing products to be similar to each other.

2) In retail, there are various benefits to positioning your store closely to a similar competitor. In this way you capitalize on their investment in market development. It’s relevant to all kinds of retail operations; record stores, nightclubs, boutiques, what have you. Coffeeshops (Starbucks or otherwise) are a particularly obvious application.

What’s truly unfortunate is that because Consumerist has ignorantly framed this as an original, new observation, their comment community is inspired to wibble on their own uninformed ideas. This could have been an opportunity to write something like, “Did you know about this basic economic principle?” and inspire readers to go read something even more substantial—which would serve the Consumerist mission perfectly.

The moral for publishers: Aim higher. Think about spreading actual knowledge, and don’t just push links around.

The moral for readers: Don’t assume that the writer knows more than you do about the topic. I, for example, am neither a financier or an economist, and fully expect to be corrected soon about the details here.