Schelling Point as Selling Point…

You may think the title is a play on words. It is- but with a purpose.

In Game Theory (as developed by John von Neumann and Oskar Morgenstern), Nobel Prize winner Thomas Schelling subsequently described what became known as Schelling Points. These are Focal Points, or places where people tend to go in the absence of being able to communicate directly. The classic example in New York City would be the information kiosk at Grand Central Station for 2 people who had arranged to meet, but had then lost contact. It might not work, but it would be the option that would be most likely to. Another way of looking at a Schelling Point would be as the “default setting”, or place/product to which people tend to gravitate almost without conscious thought. And what were and are markets if not places to “meet” and communicate, even if not always physically?

In some ways a Schelling Point is also a form of capital, as it confers an advantage in terms of salience and importance. Consider, for example, the world of venture capital and business start-ups. Anyone asked the question about where one would wish to go first (at least in the US) as a start-up entrepreneur would be most likely to answer “Y Combinator”, which has built an extraordinary franchise over the past 15 years, serving as the starting point for now famous businesses such as AirBnB, Stripe and Instacart, to name a few. Why? Because it became the accepted focal point.

Of course, the fact that “X” acquires such a status can become the source of stagnation if no adjustments or improvements are made as the world changes around it. One has always to guard against complacency, and Schelling points are not necessarily static.

Nevertheless, clearly there is a value in being one.

If one looks at the realm of (re)insurance, at one point the Lloyd’s Market would have been the most obvious place anywhere to go to obtain insurance, and its wordings the standard, which vastly decreased frictional costs for Insureds. Since then, competition and commoditization have led to a much more diversified industry, yet at the same time often an underperforming one in terms of its core purpose of effective underwriting, with cost structures that are no longer fit for purpose, and in which needless and heedless complexity is pursued as a means of “differentiation”. The constant search for a competitive edge is the basis for innovation, but it comes at a price. There is a constant tension between competition and monopoly, as is increasingly visible in the “Tech” world. If there any Schelling Points, they are probably the London Market (for insurance) and Bermuda (for reinsurance).

So, whatever your business model or segment may be, the goal should be to become known as the most obvious and effective Focal Point for fulfilling the needs of your intended customer base. If you do, you stand a better chance of building and compounding scale and effectiveness. In other words, seek to be “front of mind”, so that the idea of reaching out to you becomes an obvious one, and almost automatic.

The Awbury Team

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