As an observer of market trends and economic indicators, I have often looked with amazement at the dramatic shifts in the economy. Whether it’s consumption spending, employment and savings rates, or corporate profits, one question always stands out: What expectations are realistic for corporations?
This point is central, as we see publically-traded companies providing direction on their product base and business strategies that are based on ever-escalating rates of growth. While there are always opportunities for innovation, improving processes and reducing costs, there is one reality that seems rarely to be considered: What slice of the consumer pie do we have? And how much should we expect to increase it?
The first decade of this century has been intriguing to say the least. At its outset we saw the bursting of the dotcom bubble. After the tragic events of 9/11, the mantra was to go out shopping. Then, the financial institutions and the government, certainly in the U.S., became intrigued with innovative financial instruments that enabled (and encourage) people to buy homes they could not actually afford. Next came the credit crunch and, yet again, governments and corporations pleaded with the public to keep on shopping. And over the past 18 months we have seen the bailout of some of the world’s largest financial institutions and various other businesses, most notably in the auto sector.
I often wonder: whatever happened to the good old days of not spending what you don’t have?
We all know that we can and often must function with a certain amount debt – for example, to buy a house or a new car. However, at some point this notion of going further into debt to acquire more goods is going to have to stop, and there are many of late who have had that rude awakening. This also applies to businesses: While all companies are driven by the bottom-line – to sell more, produce for less, and obtain more profit – it has become most apparent that the capitalist model does have its limitations.
While I am not advocating that we replace the free market with a socialist/communist state, I do believe that corporations over the longer-term will need to revise their modus operandi. To paraphrase the “natural rate of unemployment,” a term coined by Milton Friedman (not necessarily my favourite economist), I suggest that, similarly, there is a natural rate of consumer consumption. If we stay below that rate, the economy stagnates. If we go above it, the economy overheats and there are price and wage distortions, such as we’ve seen in recent months and years.
But, again: how big is this pie? Consumer debt is at its highest point in history, and there is very little leverage left within the system to accommodate the acquisition of more goods. From a market research standpoint, quite apart from the dialogue surrounding brand differentiation and in various ways getting closer to customers, there is another question that business operators need to ask: In an economic environment such as this one, how are we going to move forward?
Ongoing investments in marketing and product development are critical to business’s survival. But businesses also need to do a reality check, to adjust to the possibility of operating in a very low growth environment for a long time. What’s wrong with doing what we do exceptionally well, innovating within our target audience, and meeting the expectations of these customers and acquiring some new ones along the way? What’s wrong with conveying and reinforcing the message that sustainability, savings and holding to a longer-term view of customers’ long-term welfare is in fact an important corporate value?
To operate with this kind of sustainable business model and mindset, it would of course be a major challenge to inform customers and, indeed, get them onboard. On the other hand, such a bold and novel shift in strategy – for an organization to actually acknowledge that the pie has a finite size, that this is the slice it claims as its own, and that it plans to make every effort to make this slice as tasty as possible – could provide an enormous opportunity and a powerful competitive differentiator. I am not advocating for businesses to toss out their competitive and market research, but to better direct them to aligning resources and operations towards building the best possible business.
This is exactly the kind of customer engagement that lends itself to one of the other major phenomena of our times – and augmenting it social media, rather than conventional communication channels, where consumers and stakeholders can frankly discuss why and how to make products and services better. Yes, thinking bigger, social media can be integrated into a business’s LEAN/ISO processes and connected to communications and corporate social responsibility initiatives.
But that’s another story…