It is common for technologies that were originally highly differentiated to become more and more similar over time. This process is known as Technological Convergence. Part of the reason for this convergence is that all Competitors are constantly monitoring one-another and integrating each other’s Competitive Features when they are perceived to be successful in the Market.
This workflow simulate a Market in which all Competitors are enhancing their Product so as to copy the Features and Benefits of all the other Products in the Market that have been successful in driving sales. Specifically, if a Customer buys a Product then all other Competitors will personalize their own Product so it looks more like the Purchased Product to that Customer.
Technological Convergence does increase the value of Products over time. That is, the Willingness To Pay (WTP) of Customers for Products increases.
But the differentiation between those Products is reduced, and here we examine how the Strange Differentiation between Products will decrease. This reduction in differentiation causes Customers to become more Price Sensitive and Profitability to decline.
Spacely Sprockets, Cogswell Cogs, and Jetson Gears have all reached the same level of Product quality and all have equal Market Shares. But as the laggard in the Market, Jetson Gears is Priced $5 cheaper than the others (at $85).
To drive further growth, each Competitor watches closely the Products that Customers choose to buy. Each Competitor then enhances and personalizes their own Product so as to be more appealing to those buyers. But to do so, each Product needs to more closely copy the Competition.
All three Competitors, Spacely Sprockets, Cogswell Cogs, and Jetson Gears, offer identical average WTP value ($100) and manufacture their Products at identical Costs ($50). However, the Price of Jetson Gears is only $85 ($5 cheaper than the others).
In the beginning, this Price difference doesn’t matter too much. All Competitors have over 30% Market Share, with Jetson Gears collecting 36.5%. However, Profitability for all three Competitors is almost identical ($120,000).
Convergence over Time
The Market Simulation is run over 10 iterations between the ‘Recursive Loop Start’ node and the ‘Recursive Loop End’ node. Each iteration, all Competitors personalize their Products and shift the individual Customer’s WTP towards the Purchased Product by 10%. A new simulation is then run and the results are passed back to the beginning of the loop.
Over time, each of the Competitors Products look increasingly like the others, with each Customer having nearly the same WTP for each Product. This reduces the Strange Differentiation between the Products and causes Customers to be more Price Sensitive. In turn, Customers start switching to the cheapest Product (Jetson Gears).
While the Mean WTP increases from $100 to $119, the Standard Deviation (SD) decreases from 40 to 35.