Last Wednesday, during the Launch of Napkin Competition at the University of Melbourne, a student audience asked the two speakers “Is it worth pursuing a market where no gap exists, which is already saturated by competitors?”
Webjet founder David Clarke gave a straight, “No.” “Just don’t do it.”
But Salvatore Malatesta, founder of Malatesta Corporation, said, “It’s not impossible.”
Malatesta is the first in Melbourne to charge $12 for a cup of coffee. He operates the micro-roastery St. Ali, which sources premium coffee beans from around the world and supplies them roasted to a number of specialty cafes in Australia, including his own Outpost and Sensory Lab.
The food and beverage industry had always been a saturated one, yet it’s never short of successful newcomers.
Malatesta makes a mindful distinction between cost-conscious consumers and premium consumers. “The first group wants things quick and cheap, whereas the latter base their purchasing decisions on brand and perceived value.”
While businesses serving cost-conscious customers are fragile if thin margins are not immediately compensated by large market share, it’s another story in the premium market. Malatesta says opportunity is plenty even in a saturated market as long as the entrepreneur can create unique value for this type of consumers.
This point is probably best illustrated by Malatesta’s newly launched Sensory Lab online subscription, where customers pay to have premium coffee beans delivered to their door, as well as receiving a number of value-adding services such as barista training, in-store discount, vouchers and a Sensory Lab coffee pin.
It’s an innovative business model that turns the hard-to-scale brick-and-mortar business into something scalable, leveraging the power of internet. By providing this extra value, Malatesta hopes his finely roasted coffee beans will help build relationships with end users, with the monetary benefits to come in the long run.
David Clarke, who in 1998 started Webjet — now Australia’s largest online airline booking website — is a pioneer for his time. He is adamant that if you can’t identify a value-adding gap in the market you want to enter, don’t do it. Market saturation is somewhat irrelevant.
Clarke says the premium market is all about selling “fantasies”, but a justifiable ones.
The travel industry today views airline tickets as pure commodities, and the recent success of low-cost budget airlines seems to suggest that the pursuit of “quick and cheap” is in the right direction.
But Clarke is appalled by this proposition even though Webjet is often associated with low-cost traveling. He says the airline industry has “just lost it”, and committed themselves to a self-fulfilling prophecy.
Clarke argues that the value-adding gap doesn’t have to be price advantage; it can involve spectrum of services, status and tapping into emotions. “Travel is also a fantasy where you get to meet different people in different places,” says Clarke. “The cheapest way to do that, of course, is to use conference calls.”
He praised the short-lived “Spirit of Australia” campaign run by Qantas years ago as an example of creating fantasy for travellers. Unfortunately, the campaign failed when the economy hit a downturn.
And the difference in opinion? Malatesta suggests opportunity lies in every market and it’s up to the entrepreneurs to create unique values that connect their brands to the consumers. Clarke argues that if you can’t identify a value-adding gap or be able to create a business model to tap into that gap, it’s not worth your effort.
So the debate between the two speakers was almost two sides of the same story. Indeed every market nowadays tends to become quickly saturated with competitors.
And the key takeaway: focus your business on creating unique values that address a specific market gap.
The Napkin Competition is an business idea competition run by Student Entrepreneurs | Agents of Change.
Tian Yang is the founding member and vice president of Student Entrepreneurs | Agents of Change, an organisation dedicated to creating and cultivating entrepreneurship communities in Australian universities. Tian is currently completing his Bachelor of Commerce/Media & Communication degree at the University of Melbourne.