Managing a business is challenging enough- balancing customers’ needs with organizational priorities in the pursuit of profitability. The day-to-day tasks tend to put the focus on the short-term. All the while, winds of change are swirling outside the walls of the organization. Change is inevitable, and many firms that are successful today will encounter turbulent times ahead because they were not prepared for disruptions to their business models.
Marketing expert Martin Lindstrom raises this issue in a recent Fast Company article. He points to two companies as examples of how disruptions can blindside an unprepared company: Polaroid and Blockbuster. Polaroid was riding high in the 1970s and 1980s with its instant camera. Of course, digital imaging technology has rendered Polaroid irrelevant in meeting that particular customer need. More recently, Blockbuster went from the dominant movie rental retailer to a bankrupt entity that was acquired this week by Dish Network for slightly more than $300 million. That figure is more than 90% off of Blockbuster’s market value in 2002.
Polaroid and Blockbuster were taken down by disruptions- changes from outside the organization for which they were unprepared to adapt. Like death and taxes, change is a certainty. Whether it is new competitors, emerging technologies, or shifts in customer desires, change will happen. Having foresight to sense potential disruptions to the business model is a trait that sets apart successful firms from struggling ones.
Sometimes disruptions blindside a company; in other cases the disruption is observed but resistance in the form of maintaining status quo prevents adapting to the disruption. I have observed the latter in higher education. Greater interest in online education and intense competition from for-profit institutions has propelled many traditional colleges and universities to debate the need to adapt to the disruptions. As the debate continues, the disruptions further threaten the competitiveness of traditional institutions.
While managing the here and now, keep an eye toward the future to spot the next disruption that will impact your business. Be out front and turn the disruption into an opportunity. The alternative is to follow in the footsteps of Polaroid and Blockbuster, companies that did not adapt to disruptions and became victims of change.
Fast Company – “The Anti-Blockbuster Way: Disrupt Your Business Rituals Before Someone Else Does”
Beginning a discussion by saying “the government creates marketing opportunity” is a bit unusual. We tend to think of governmental regulations and influence as limiting for businesses. One exception might be the Consumer Assistance to Recycle and Save (CARS) program, better known as “cash for clunkers.” Its aim is to entice owners of fuel guzzling vehicles to trade for more fuel efficient models. The program itself could be a boon to the auto industry as it offers up to $4500 in incentives to consumers. However, if auto companies rely only on the stimulus effect such a program would potentially create they will miss opportunities to reach potential buyers.
An example of proactive marketing in response to the government incentive program is Ford’s “Recycle Your Ride” campaign. Ford has observed (probably correctly) that the conditions and eligibility requirements of the incentive program will be confusing to many people trying to determine if they are eligible. In response, Ford has an interactive calculator on its web site that will enable consumers to input information on their vehicle to determine their eligibility for the government incentive. In addition, Ford has identified approximately 20 models in its product line that meet the criteria of the government program.
By being a resource for consumers to sort through the details of the Cash for Clunkers program, Ford may be better positioned to reap the benefits of this incentive program than its domestic competitors. A quick perusal of GM and Chrylser web site home pages finds no mention of the Cash for Clunkers program or any marketing efforts that respond to the opportunity. The emphasis of the content on those web sites currently is the company, while Ford’s site tries to help the consumer. Which one do you think potential car buyers will favor? Ford’s tactics illustrate that we should always be looking for an opportunity to provide clarity for customers when uncertainty is present.
Marketing Daily – “Ford Eyes Opportunity in Clunker Confusion”
If someone were to come up to you and say “I’ll give you $100 if you can explain to me how our economy got into the current mess that it is facing,” could you earn that Benjamin? I don’t think too many of us could. We may not be able to explain what is going on or how we got to this point, but most of us realize what is happening to the U.S. economy is not good for it… or for us.
The result of the daily media analysis of our economy is that confidence in it is shaken badly. It is a real concern for sure, and that concern has been elevated by the frequency of messages from the media. If you hear something enough times, you will begin to believe it. So, if people were skeptical of the economy being weak or even oblivious that there might be something amiss, the gloomy tone of coverage has convinced many of these people that they should be worried.
The concerns we have are forcing us to curtail spending and consumption in many areas, notably clothing and dining out. Some categories may be insulated somewhat from the frugal consumer, most notably entertainment. Sales of video games and DVDs continue to be unaffected overall by the economic slowdown. In fact, it is these indulgences that are a source of escape, taking our minds off of tough economic times. Businesses that sell products or services that can meet this need may find some solace in a period when sales and profit expectations are uncertain at best.
Link: The New York Times – “Full of Doubts, U.S. Shoppers Cut Spending”
The effects of the current state of the economy on consumers is well known. Higher prices on gas, food, and many other products and services have hindered consumer spending. The economic crunch has an impact in another area that is less noticeable to consumers but can have a significantly negative effect on our economy. That area is innovation.
Entrepreneurs rely on funding from venture capitalists and other financial sources to support their efforts to bring new products or services to market. But, a slow economy and uncertain credit markets have prompted these financial entities to pull back on their investments. As a result, budding businesses will have more difficulty raising money to take their ventures to the next level. Consumers will ultimately suffer as great innovations that lack funding to take it to the broader market will take longer to reach market, if they reach market at all.
Link: The New York Times – “Credit Crisis Spreads a Pall over Silicon Valley”
In case you don’t own a car or have been in hibernation the past several months, you may be surprised at the price of a gallon of gasoline these days. The average price in the U.S. was $3.67 as of last Friday according to AAA. Talk of a gas tax holiday by presidential candidates would do absolutely nothing about the fact that expensive gasoline seems to be here to stay. There is simply too much demand, both in the U.S. and abroad, as well as unfriendly oil producing countries such as Iran, Russia, and Venezuela that have little motivation to ease our pain at the pump.
Hybrid vehicles have been touted as one possible solution to both help the environment and spend less on gas. The combination gas and electric engine have miles per gallon capabilities that are more than 30% better than gas-only engines. That statistic would suggest that people should race down to the local car lot and buy a hybrid. Not so fast! Hybrid models come at a price premium anywhere from several hundred to a few thousand dollars over a gas engine version. This price differential has been a deterrent from hybrids gaining widespread adoption as the gas savings often would take too long too offset the higher price of a hybrid vehicle. Until car manufacturers aggressively work to narrow the price difference between gas and hybrid vehicles, adoption of hybrid vehicles will not realize its potential.
The long payback period is shortening thanks to soaring gas prices. Now, some hybrids have payback periods of 2-4 years. This shortening of the breakeven point means that hybrid owners are more likely to realize savings. Of course, this assumes gas prices remain high. While it would be nice to see prices retreat below $3.00 a gallon, there will be little reason to lower prices as long as demand does not decline substantially. This means that buying a hybrid vehicle might no longer be the wise environmental choice, but it could be the wise economical choice, too!
Link: USA Today “Hybrids Recoup Higher Cost in Less Time”
If you hear a loud rumbling, it is likely the growing group of economists and analysts deeming the U.S. economy in recession or facing an impending recession. Periods of economic decline are nothing new, but how marketers manage their brands and their businesses will not only determine how they fare during a recession but later on when the economy improves.
An article on the web site of Advertising Age magazine addresses the issue by asking 10 experts their opinion about the effects of a recession on the advertising industry. Brian Niccol, Chief Marketing Officer for Pizza Hut, identified a key response marketers should have to economic downturns: search out ideas that deliver value to customers whose value judgments are impacted by changing economic condidtions. Niccol said “The current situation requires Pizza Hut to redefine how the consumer obtains value solutions. We’ve acted quickly to create an everyday value pizza solution, Pizza Mia, which is just five bucks with superior taste.” Just as opportunities exist to move into upscale segments during strong economic conditions, marketers must look to value segments to create business in lean times.
Another pearl of wisdom in the article came from Mark-Hans Richer, Chief Marketing Officer for Harley Davidson. He dismisses the tendency to cut marketing expenditures when the economy is weak. According to Richer, “Our belief is that spending through a market downturn creates competitive advantage for the market upturn, and an extra dollar spent today has extra dividends for tomorrow.” In other words, “saving” money on marketing during a weak economy is not saving at all. Building a brand is a long-term process, not a short-term tactic. The intestinal fortitude needed to stay the course and continue marketing investments during a recession is great, though. Link
I felt inclined to close 2007 with a post about major trends that affected marketers in 2007, then follow with the first post of ’08 being about predictions for the upcoming year. It occurred to me that the content of the two postings would be essentially the same, so here it is all in one. There are three marketplace trends that unfolded in 2007 that marketers will have to deal with in 2008:
1. Rising Energy Costs – The price of oil continues to edge toward $100 a barrel. A combination of political instability in certain countries and soaring global demand means high prices are here to stay. Will it affect consumers’ shopping patterns? Are there opportunities to benefit from high gas prices? The answers are “yes” and “yes.” Consumers may have less to spend on discretionary purchases such as entertainment, dining, and travel, which poses a threat to those sectors and the economy overall. On the other hand, marketers that provide convenient product acquisition (e.g., online sellers that deliver products) could benefit.
2. Credit Crunch – The subprime mortagage lending mess put thousands of people in houses they could not afford. The result was a slowdown in new home demand, lower demand for complementary products like furniture and appliances, and less spending overall by affected consumers who are spending more on their mortgages and have less for other types of spending. The effects of this mess will continue to be felt in 2008.
3. Social Media – One positive trend heading into 2008 is the emergence of social media as platform for building customer relationships. You Tube, Facebook, and MySpace are the big names in social media, but a business has many options for connecting with people regardless of whether their audience is worldwide or local. The challenge for marketers in 2008 is to continue to explore ways to use social media that fosters customer engagement but does not cross the line to become in-your-face commercialism.
Wishing for you that 2008 is the best year ever!
Here we go again. Gas prices are on the way up once more as crude oil prices are rising toward $100 a barrel (currently around $95). Average price for a gallon of gas in the U.S. has eclipsed the $3.00 mark again. A combination of high demand worldwide and tightening supplies is cited as the cause for the surge in crude oil prices.
While the effects of higher gas prices will range from an irritation to great hardship for consumers, how does this affect businesses? An obvious effect is higher transportation costs to move products to the point of sale. Often, consumers will foot the bill for this indirectly through higher prices for products or directly in the form of fuel surcharges.
A more important question to ask is how will higher gas prices affect customer buying behavior? Will they pass on buying certain items because they’re now spending more of their budget on gasoline? If your business requires consumers come to you (e.g., retail, some services, entertainment), will they still come? For several years, I have made the 4-hour trek to Talladega, AL, to take in a NASCAR race. As much as I enjoy the experience, I can easily see myself sitting on the sofa next year watching the race! Unfortunately, it would not be just the money on gas I would not be spending, but the race track would not sell a ticket, a hotel would not rent a room, and restaurants would not sell meals.
While the possible change in consumer behavior is a major threat for some businesses, a business can seize this trend as an opportunity. Can you save customers money by delivering the product to them? One reason why a company like Netflix has thrived is because it is easy for customers to acquire DVDs. Online businesses and even catalog retailers seem poised to meet customers’ needs in a world of $4 a gallon gasoline, which is a price many experts predict we will see in the not too distant future. Link