I have just read an interesting article on Economist about Cherry Picking, which is a strategy used by consumers as well as companies for different purposes. The very act of cherry picking, this mecanisme, favors the evolution of businesses and societies at large. And evolution is a history of the survivors.

“It refers, for example, to customers who ignore products that are bundled together by a manufacturer (who in the process may disguise cross-subsidies between high-margin and low-margin components of the bundle). ” This is the cherry picking of the consumers. The objective of the cherrypicking consumer, in the end, is to find a bundle of products at the lowest price with the highest quality. It makes manufacturers to compete over quality as well price, creating a competitive market. Only the fittest manufacturers will survive the tests of consumers. Thus the evolutionary power of this strategy over corporations.

In a similar way, corporations can also pick customers. New comers in an established industry can sometimes cherry pick their way to success.  “The term cherry-picking is also applied to the behaviour of new entrants into old industries, firms which try to choose their customers carefully. By calculating which consumers are profitable (and appealing to them while ignoring those who are not) such a firm can sometimes rapidly gain market share.” “In car insurance, for example, cherry-picking in the UK pushed up the price prohibitively for young male drivers, the highest-risk group.” This is a typical evolutionary force at work where cherry picking has put young male drivers out of the race… In a way, I begin to understand why French banks prefer to lend to clients with little financial dynamisme. They are also cherry picking their customers. Those with little financial knowledge could accept offers with more margin, they may also be reluctant to move from status quo, say repaying a 25-year mortgage. While financial savys are smart enough to avoid traps and moves fast when opportunities occur, like interest rate moves lower, huge equity market opportunities in emerging countries, things like that. They are also less likely to be attracted by bland, non performing funds proposed by the bank. It is the same principle with the global free cash flowing around the world finding a place to invest. They seek profits. Yet as soon as the macroeconomic contexts are gone, they are gone, leaving behind projects suspended and stock markets in panic. From a broader view, these are all cherry-picking behaviour. Banks select customers, cash select investments, logic. All these contribute the evolution of … economics. ( like proposed by the Mckinsey book “Origin of Wealth”)

Further reflection of cherry picking connect me to another article on Captital on Dartybox, which is said to be a failure because of the fierce competition on the ISP market in France. Obviously Darty tries to cherry pick its customers, with a failure. The strategy is a good one in that it is a good way to crack an established market, yet their problem is that their target customer is not very well defined, so they find themselves eating a little part of the cake of everybody, not enough to retribute the investments.

Last word about evolution and competition: the survivorship bias, which is also mentioned by the economist article. It probably means, history is defined by the winners. Yes, indeed it is. The winners can define history, because, by all means their is no loser around the contest the truth.

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