Have you ever heard of the Braess Paradox? It's a “Contrary to Common sense phenomenon” in which adding more capacity to a network can actually make it slower. The principle applies to traffic networks, but it can also have implications for your marketing strategy. Here's how it works: In a network of roads, drivers will choose the fastest route to their destination. But if one of those roads becomes congested, drivers will start looking for alternative routes. This can lead to a "tragedy of the commons" situation where everyone's efforts to avoid the traffic jam actually make things worse. By spreading out the traffic, they end up clogging up more roads and increasing travel time for everyone.
In the context of marketing, the Braess Paradox can occur when companies oversaturate a market with too many offerings or channels, hoping to capture more customers or sales. However, this can backfire by confusing or irritating customers, diluting the brand image, and raising the cost for all participants. Instead of gaining a larger share of the pie, the companies end up with a smaller one.
Let’s look at some examples of the Braess Paradox in action:
- In the early 2000s, Starbucks embarked on a massive expansion campaign, opening hundreds of new stores every year. While this seemed like a logical move to boost sales and brand exposure, it led to several negative effects. First, the new stores often cannibalized sales from nearby ones, reducing the overall revenue per store. Second, the increased competition made it harder for Starbucks to maintain its premium pricing and quality standards, as customers could choose from more options. Third, the rapid expansion put a strain on the supply chain and the labor force, leading to inefficiencies and turnover. As a result, Starbucks had to close some underperforming stores and slow down its growth rate.
- In the late 1990s, the music industry witnessed a similar phenomenon with the proliferation of CD stores and online platforms. As more and more retailers entered the market, the competition intensified, driving down prices and margins. At the same time, the customers faced a confusing array of choices and formats, making it harder for them to find what they wanted. Eventually, the industry suffered a decline in sales and profitability, as well as a loss of credibility and trust among consumers who felt cheated by the price wars.
- In the fashion industry, the Braess Paradox can be seen in various ways, such as the overproduction of seasonal collections, the excessive discounting of unsold items, or the increase in retail channels. For instance, many fast-fashion brands like Zara or H&M have been criticized for their unsustainable practices of churning out new designs every few weeks, encouraging impulse buying, and promoting throwaway culture. While this strategy may attract some customers who crave novelty and affordability, it can also lead to environmental damage, labor exploitation, and social inequality, as well as a loss of brand value and differentiation.
By understanding the Braess Paradox and avoiding the "tragedy of the commons" in your marketing efforts, you can potentially find new opportunities to reach your target audience without getting caught in a bidding war or other crowded marketing channels.
