Ahan Analytics, LLC

This weekend, my alma mater, Stanford University, played football at Wake Forest. I was fortunate enough to make the trip although Stanford was not fortunate enough to win. I was also not fortunate enough to eat lunch before attending the game, paying $9.50 for the privilege of enjoying a small pepperoni pizza and an ice-loaded soda. I lamented with my friend the high cost of participating in a captive audience (the stadium does not allow outside food or beverage, but, of course, I cared more about attending the game).

Businesses love captive audiences because they provide a marketplace full of consumers who care more about an experience than its price. Moreover, a captive audience typically has no good alternative to the products and services offered for the duration of its “stay.” During a recession or economic slowdown, a captive audience can be an important and effective tool for protecting price points and maintaining profits. In the case of the college football stadium, the price of admission is relatively low ($17), while the price of staying is relatively high (in the form of concessions, seat rentals, and other products).

Investments in product quality can also help a business create a captive audience. Establishing a reputation for high quality products also translates into a strong brand name. A strong brand name consumes mind share in a marketplace – the captured audience – and constructs a higher barrier for competitors trying to win over customers. Most importantly, high product quality generates the goodwill in the marketplace that leads to the strong willingness to pay required to protect price points (and profits). These dynamics are particularly powerful during an economic slowdown where customers are extremely motivated to reduce expenditures.

There are a few required elements for high product quality to provide the kind of captured audience described here. Market and product analysis can verify how strongly a company scores on these elements.

1. “Good enough” is not sufficient to accomplish the customer’s goals.
2. Adequate substitute products do not exist and/or are extremely difficult to develop.
3. Investments to sustain high product quality are not prohibitive in cost.

Trina Solar understands these concepts. Trina Solar operates in an industry where projects cost a lot of money, project financing is tight, competing products are in high supply (quickly becoming commoditized), and pricing pressures abound. However, during its last earnings conference call, Trina Solar emphasized its advantage in this environment due to its reputation for high product quality, an extremely important characteristic in the solar marketplace. A substantial portion of Trina’s business has also been in small markets (Belgium and Italy) where it is considerably easier to construct the “captured audience.” Trina now looks to leverage its success into larger markets like China and the U.S. If the company continues to deliver on its promises of high quality (at lower costs even), it should continue to capture larger market share…and audiences.