Cherry Pickers Demonstrate Why It’s Good to be a New Player in an Old Industry


The Economist points out a key advantage to being a new entrant in an old (saturated?) industry:

The term cherry-picking can be applied to the behaviour of new entrants into old industries, firms which try to choose their customers carefully. By calculating which consumers are profitable (and appealing to them while ignoring those who are not) such a firm can sometimes rapidly gain market share. In some cases, cherry-pickers are successful only because traditional firms in the industry do not actually know who their profitable customers are.

Service industries are particularly vulnerable. It is more difficult for them to measure the profitability of individual customers and customer segments. So they are never quite sure which they want to keep and which they want to get rid of. Successful cherry-pickers leave an industry’s incumbents with the least profitable customers. They also push up the price to those consumers who are not attractive to them. In car insurance, for example, cherry-picking in the UK pushed up the price prohibitively for young male drivers, the highest-risk group.

A bunch of new airlines set about cherry-picking when deregulation of the skies in Europe and the United States allowed them into the market. Within limits, they were able to choose which routes to operate on. They were unencumbered with the obligations that the traditional national carriers had had to bear in the interests of government policies on transport and/or regional development.

The authors conclude with a note on the survivorship bias, a theory that says business analysts tend to “judge the past by the record of relatively long-term survivors, ignoring those who drowned or came and went in the meantime”–ie., the cherry pickers.

Cherry picking is a good short-term tactic to enter a market. But what does it take for a company to stay in a market once its customers are secured? Can a company use cherry picking to survive more than a few years?

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