Wednesday, March 30, 2016

Brewing positive-sum growth

                The key takeaway from the readings this week, for me, was the value of competition based on quality of service and brand image, rather than competition as an arms race to lower prices. More specifically, Michael E. Porter talks about “positive-sum” gains in “The Five Competitive Forces That Shape Strategy”. Reading about this, I realized that there are industries that very successfully allow for both price-based competition and value-added competition. Near and dear to my heart is the American beer industry, containing consumers who just want the largest quantity for the lowest price, and then consumers who go for individual characteristics—whether quirky branding, local charm, or hoppy-est taste.
                Bearing this in mind, and bearing in mind the multi-faceted nature of the industry, as well as the crucible of “the market state” in “What happens next? Five crucibles of innovation that will shape the coming decade,” I think it would behoove the government to create an incentive for brewers to adopt the most economical, environmentally friendly brewing methods, with one incentive aimed at macro brewing processes, and one incentive aimed at micro brewing processes.
                The benefits for both sides of the industry seem apparent, especially if you consider the potential intersectionality of the spectrums of income and environmental consciousness: craft brewery Southern Tier might benefit more, from a branding perspective, than Anheuser-Busch by being able to put the environmental seal of approval on its products, but the same distinction likely would not hurt Anheuser-Busch, and likely would make more environmentally conscious consumers more inclined to purchase a Budweiser.
                And that’s the rub: by providing an incentive to brewers to become environmental stewards, the government can also nudge (to use a favorite term of libertarian paternalists) the beer industry toward profitable competition. Moreover, the government would be nudging the beer industry to address “Crucible 4: Pricing the planet” in its quest for further growth.
                Granted, the incentive structure would have to be devised to prevent rent seeking (perhaps a tiered award system, based on proof that a breweries methods have reached certain standards and, ideally, lower production costs). But considering the room for differentiation and market segmentation in the beer industry, based on both branding and location (I can get excited about both an environmentally-friendly brewer from PA, and an environmentally-friendly brewery from my home state of New York, in addition to an environmentally-friendly Budweiser when I’m low on cash), I think there is room to stimulate competition that is not price-based.
There is room for more positive-sum growth in beer.

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