e bay meets fair trade

October 5, 2007 at 5:40 pm Leave a comment

A thread with john berger:
he asked this question:
At Netsquared we spoke about World of Goods ebay relationship. You may have already seen this, but I only just saw they put up a website at http://www.projectgood.com.

I wanted to bounce a few thoughts off you. If you remember, one of my concerens was that WoG might run into inventory overhang problems as a basic challenge of their model and that they might view the ebay option as a good way to move overhang.

This might still be true, but based on what I see at their website, ( this is very unclear), it seems to imply that they will let other distributors and retailers sell through this site. Im going to contact them for clarification, and to see if we can be a “trust provider”.

Here are my new thoughts. I am concerned that if this succeeds it may have the unintended consequence of reducing the “fair trade premium” . My assumption, and I feel work we have done with our partners proves this, is that handicraft producers in developing countries are very flexible and can change the products they make to maximize sales and productivity. So, groups like ours and our partners, will be watching this new site to see what is selling and figuring out what product lines are producing the best margins. It will be natural for us, and presumably others, to try to use this information to shift production to the more profitable items. This of course, would create price competition and probably reduce or eliminate the fair trade premium.

Even if producers are slower to react then we are to this data, most products are not really unique so I think there will be quickly be price competition. World of Good can control that internally, if they buy a bead necklace from 10 vendors at different costs, they can still sell at one price. But if those vendors have other distributors then you will get price competition.

Basically, one of the benefits of existing fair trade distribution models is that there really is not an efficient marketplace so they can use the inefficiency for their social goal, but if this works? It does not hurt us as much because of the way we sell around a narrower issue and because we usually get exclusives with our partners and one of the services we provide them is design and product selection, so we can adapt to and take advantage of this.

Do you think I am off base here?

John Berger, CFA

Chief Executive Officer

The Emancipation Network, Inc.

800-831-6089 x6

http://www.madebysurvivors.com

I gave this answer:

John, some really interesting questions here. I’m ccing tim and our portfolio team because i think you raise some interesting issues. Thanks for pointing them out. E-bay’s competitor to kiva, microplace is going to launch soon, too, but it has a whole different, more investor focused approach as i understand it. So does transparency result in commodification? not if you use that to clarify a brand premium, is one simple answer. we are looking at fair trade coffee company pretty seriously as potentially our first investment. with sam’s club going heavily into fair trade, mission becomes a market differentiator, as people demand more authentic brands, not just a corporate intrusion into a good area like fair trade. in what way is or can mission be a differentiator as this market matures and becomes more transparent? we are pricing capital into a new area; that’s a transparency driver, too. if you make your money on ignorance or lack of clarity, i think the trends are against you.

while inefficiency may protect some margins through the ignorance arbitrage premium, it also keeps the entire field smaller and weaker than it would be otherwise, too. so how do you compete as the category starts to grow? how do you explain your more than numerical value? brand building leading toward the dynamics around luxury goods (not bought on cost benefits, but because you really want it and are willing to pay for it (iphone vs. a hand held multifunction communication device). keeping the passion alive as pricing becomes transparent is a key challenge..

some companies ask us to come into their deals as something like mission risk insurance, when there is other capital with other values at the table. another aspect of what we bring may be mission premium protection. that’s a brand building exercise. eg. i am doing a keynote at an investor conference in hong kong in december. they are flying me and one of our prospect companies at their expense to talk to investors (pacific community ventures is also going and taking a company) because they want to understand this new investor demand they have heard about. it should be a great brand building for the company, better world books, which is amazon with zero carbon footprint on shipping, taking donated books from college campuses, selling them online and donating profits to literacy programs; amazon with a mission premium.

i think you protect premiums by telling your value story clearly as people demand more authentic brands, (b corporation certified, and more).
and that may mean either avoiding certain commodifying sales venues, or trying to make sure those values are differentiated clearly in a venue like ebay which has been all about price…

assuming an efficient market is coming, because demand is growing, how do you compete and differentiate yourself?

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The evolving market map ignorance, the new knowledge

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