The idea of cherry-picking is applied to a number of business contexts. It refers, for example, to customers who ignore products that are bundled together by a manufacturer (who in the process may disguise crosssubsidies between high-margin and low-margin components of the bundle). Such customers prefer to bundle their products together for themselves, selecting the best (that is, cherry-picking) from each category of component.
An obvious example is the purchase of music systems. Manufacturers sell music sets, made up of an amplifier, a tape deck, a cd player, speakers and a tuner. But many music enthusiasts choose to assemble their own sets, buying their amplifier, tape deck, speakers and so on each from a different producer. Manufacturers try to discourage consumers from behaving in this way by making the price of the complete set competitive. But earnest cherry-pickers can usually find discounted components that enable them to assemble something cheaper.
The term cherry-picking
is also 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 and 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 know who their profitable customers are.
Service industries are particularly vulnerable. It is 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 consumers who are not attractive to the cherry-pickers. In car insurance, for example, cherry-picking in the UK pushed up the price prohibitively for young male drivers in the 1990s.
A number 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 choose which routes to operate on. They were unencumbered with the obligations that the traditional national flag-carrier airlines had had to bear in the interests of government policies on transport and/or regional development. Virgin, which cherry-picked the London-New York run, was one such airline.
In banking and insurance, cherry-picking newcomers were able to undermine the business of old-timers in just a few years at the end of the 20th century. Firms such as Direct Line, a British telesales insurance business, rapidly won market share by focusing on a narrow (profitable) segment of the market and avoiding costly traditional distribution channels.
The success of cherry-picking emphasises something known as the survivorship bias: the tendency of business analysts to judge the past by the record of relatively long-term survivors, ignoring those who drowned or came and went in the meantime.