David Stoughton of ValueKinetics writes:
Commenting on declining sales following the crunch, the Economist notes, "It is tempting to conclude that, once economies rebound, customers will start spending again as they did before. Yet there are good reasons to think that what promises to be the worst downturn since the Depression will spark profound shifts in shoppers’ psychology." Some mistake, surely! The shift they observe started long ago, the downturn serves only to expose and accelerate a revolution in consumer markets that has been creeping up on us for years.
Ever since the Internet flooded the the market with information, customers have been using it to break up value chains and unravel established business models. As Mike Bayler has pointed out elsewhere in this blog (From value chain to eco-system) the earliest and most obvious example was in the packaged holiday market, but media and much of retail soon followed. Personal finance, the well-being end of the health market, and energy are well on their way and, as the Economist correctly observes, cautious customers in the wake of the crunch are speeding others into the whirlpool.
Until now the gradual pace of the change has served to disguise its extent, but what's happening is nothing short of a revolution - one that will transform, or sweep away, many established industries. Management faces greater challenges now than at any time since television accelerated mass marketing and kick-started the wave of consolidations preceding globalisation. With the crunch bringing the moment of truth ever closer for a majority of consumer industries, it may be time to stand many accepted strategic nostrums on their head.
When customers gain control, suppliers are compelled to organise to meet what demand there is effectively. The search for ever increasing efficiencies, relying on marketing to shift ever growing volumes of product, is over. The business logic must change too. In the terms used by Theory of Constraints, the customer is now the bottleneck, the factor that constrains the volume you can produce. The same theory advises that everything else be subordinated to the bottleneck if maximum throughput is to be achieved. That requires you to think differently - try reversing almost every stage of traditional strategic analysis.
- Stop thinking of your market in terms of a product or service category - think instead of the category of customer concern or interest you serve. This changes, and sometimes obliterates, sector boundaries and enables you to think in terms of clusters of relevant, associated, consumer needs you can meet.
- Stop trying to build a community round the brand - instead build the brand round the community that naturally forms around key customer concerns.
- Stop thinking of consumers as a sink for production - start thinking of them as collaborators and partners in identifying and responding to the needs of the community you are dedicated to serve. That way you expand the scope of your business and with it the services you can supply.
- Stop thinking in terms of geo-demographic or behavioural segments - think rather of niches defined by particular clusters of customer concern, shared interests and circumstances, or a common and distinct sense of identity within the community.
- Stop thinking of your outlets as distribution channels - start thinking of them as the routes that customers mix and match according to preference to gain access to, and exchange experiences of, products, services, information, and advice, that meet their needs.
- Stop thinking in terms of value chains, supply chains and scale efficiencies - think instead of networks and your role within them. In particular decide whether, from the customer's perspective, you can be most effective as:- a butler, the apex of a pyramid of assistants designed to service every whim; a broker ensuring best value from each deal; a hub linking customers, suppliers and advisers together and with each other; or as a dashboard, presenting all the options and criteria impartially but leaving the choice entirely up to the customer.
if you reason from the customer perspective and work backwards into your value proposition and the business that delivers on it, there is a good chance that the solution to an apparently disappearing market will be immediately obvious. It may entail making profound changes to your business model, but better face that fact now than wait for the axe to start falling and panic only when it may already be too late.