Innovative Commerce
- Extra
- Sep 11, 2016
- 4 min read
Introduction
Business trend has been rapidly changing over time. Traditional local stores have been replaced by Modern Trade Corporation. Obsolete trading methods have been overcome by idea of harsh capitalism to find alone winner by having superior resources to eliminate other competitors. The competition in the market has become very critical. One of the most important factors for surviving this market competition is up to the abilities to spontaneously adjust its own business strategies and services in time, and to effectively utilize technologies for improving business performance.
What is Trading?
Today, people sell things and buy things at the market - that is called trading.
There are three roles at this trading process: the seller, the buyer, and the market.
In normal market situation, the seller usually sells with two constraints - his cost and his satisfied profit - which later become the selling price.
At the same time, the buyer usually buys with two constraints - his budget and his satisfied quality - which later become the buying price.
The market is the place where the seller and the buyer negotiate the trading price - which create two factors in the market called 'demand' and 'supply' , which depend on the price and quantity of the trading subject in the market.
When there is a equilibrium point, where the demand and the supply encounter, the seller will sell, and the buyer will buy the trading subject. That is how trading in normal market situation happens.
What happens next?
Once the new successful product is launched, normally, there would be a high demand in a low-supply market; therefore, the price will be as high as the buyer is still willing to buy, making the seller very happy for the price which is beyond his expectation - and certainly attract more competitors.
When there are more sellers in the market for the same product, creating more and more supply in the market, it will result in price decreasing as the supply is beyond the demand in the market.
If this continues, the market will become a harsh battle field where the sellers fight one another with their own resources such as capitals, barriers, or even authorities. Until there will be a few of big fish who conquer this red ocean, the battle will go on and on. The market will be either monopolized or collapsed.
Who would survive?
Remember that the seller usually sells with two constraints - his cost and his satisfied profit. What if the two constraints, eventually, becomes only one subject - his satisfied loss.
This is how normal seller think:
Selling Price = Cost + Big Profit
If there are competitors, then:
Selling Price = Cost + Small Profit
But, if there is a harsh competition:
Selling Price = Cost
Yet, if losing, and try to survive:
Selling Price = Cost - Satisfied Lost
When the market become a battle field, which certainly would happen at some point, those who survive would be either a stronger ones or a fast ones.
The stronger would usually try to manipulate the market and kick other players out of his conquered ocean, and stay in power with his special resources.
While the faster one would survive by moving out of the battleground in time.
Actual cost & Opportunity cost
While many people believe in their strength for the battle, there are people who prefer speed for higher survival rate.
Yet, in the business, the speed of moving from market to market is still tied with the word 'cost' because most people do not want to leave the market by gaining lower than their original cost.
However, what is usually forgotten is that there are two types of costs in the trading business actually.
One is the actual cost, which is 'tangible' to most people, which includes cost such as cost of products, cost of operation, cost of joining the market, etc.
The other cost, which is 'intangible' to many people, but truly important, is the opportunity cost. This cost is derived from opportunities, which could bring you more benefit only if your invested resources are elsewhere.
Therefore, those who understand the value of the opportunity cost will likely have tools to manage their own risk - the actual cost & the opportunity cost - when they need to move out of the market faster.
Hedging & Voluntary Liquidation
In term of investment, hedging against investment risk means strategically using instruments in the market to offset the risk of any adverse price movements.
In term of business, voluntary liquidations stand in contrast to compulsory liquidations, which are a result of bankruptcy. The shareholder vote allows the company to liquidate its assets or operation to free up funds so that the resources could be relocated to a better investing operation.
There are tools like derivatives in financial market for managing such risks; however, there are fewer option for trading business.
Unreserved Auction Market
Unreserved means there are no minimum bids or reserve prices set on the items in the auction. Every item must be sold to the highest bidder, regardless of price. Basically, the products will absolutely have a new owner.
This is one of the fastest business tools for hedging and liquidating trading business.
Because when sellers come to sell in unreserved auction with no cost-related constraints and buyers could buy with his preferred conditions, the market mechanism start moving again.
For buyers, they could compete over the product for the price they are willing to pay at their own conditions.
At the same time, because not tied with the actual cost condition, which most people are afraid to lose, the sellers could enter into a new market by gaining the opportunity cost. This method help creating the abilities to change business strategies and services in time
Innovative Commerce
Creation usually comes from creative creators or makers; however, it is not necessary to be a new thing because it might be just a new way to do things.
Only people who could bring a new creation into a market successfully is called an entrepreneurs who create innovation.
Traditional Commerce always comes with competitors, fighting against one another over the market share.
Innovative Commerce will focus on new ways to do businesses, prioritizing survival rate, sharing economy, and capabilities of moving forward.
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