Hotelling’s law

Science will win! Cars are looking more and more alike. Why is that? There is a scientific explanation.

⚡️ The (too) simple answer would be to accuse those responsible of too little creativity or a lack of courage. But as is the case with many simple answers: It may be obvious. But it is wrong.

Indeed, marketing professionals should be aware of Hotelling’s Law and the consequences that flow from it. (Harold Hotelling, American economist and statistician)

👮‍♂️ Hotelling’s Law states that rational producers – and I hope that includes most – will in the long run try to make their products as similar as possible to those of their competitors.

That sounds pretty counterintuitive. So step by step:

🗽 First of all, of course, every manufacturer can design or position his product as he sees fit. If he is alone in the market, he will be successful with his offer.

The only thing is that you are usually not alone in the market, but have a competitor who also designs his product as he sees fit.

😃😢 One of the two will be more successful – and from then on everything runs automatically:

Manufacturer A builds station wagons. 🚗 Manufacturer B builds SUVs. 🚙
SUVs are more successful. So manufacturer A also builds SUVs. 🚙🚙
Rounded SUVs are more successful than square ones. So: get rid of the corners. 🚙🚙🚙
Diesel more successful than gasoline engines. So: diesel for all. 🚙🚙🚙🚙
And so on

🚙🚙🚙🚙🚙 In the end, all SUVs look alike. And the one who builds another (angular, gasoline, …) risks losing market share to the competition. In game theory, such a case is called a Nash equilibrium. (Yes, exactly – “A beautiful mind” with Russel Crowe. If you want to know more about it, you can ask Prof. Dr. Christian Rieck).

For the same reason, by the way, you’ll often find a McDonald’s next to a Burger King and a KFC. Or all fashion stores in one street.

So similarity has less to do with cowardice or unimaginativeness than with mathematics.

But the consequence for marketers is not: Okay, I’ll just do what the others are doing. The consequence of Hotelling’s Law – and thus the challenge not only to marketing – is to do the same thing differently. (A very appealing definition of creativity, by the way).

For example, through more precise positioning that touches customers more emotionally. Because the advantage of positioning is: There is only room for one at the optimal positioning. For the market leader. There is only one Coca Cola. The rest is Pepsi.

Talk to the doer:

Thomas Walter
CEO/Managing Director
+49 211 936706-77






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