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Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. A former Madison, WI resident, Kay now resides in San Diego, CA. The views on her blog are not those of her employer, IBM.

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February 4th, 2010

Market disruptions demand business model innovation

recession brings winds of changeThe 2008-2009 economic recession changed customer and business behaviors, not unlike how a hurricane reshapes the built and natural environment. If you are not incorporating recession-induced changes into your business model strategy, your market position will weaken.

The Recession Has Changed Consumer Behavior – Forever

A recent in-depth study of consumer attitudes and behaviors by Context-Based Research Group, an ethnographic research and consulting firm, adds to the growing evidence that consumers have changed for good. (Listen up B2B company leaders, because your customers will change along with these consumer changes.) Consumers, after living through needed financial downsizing or, for the wealthy, downplaying of wealth, have discovered there’s magic in less.

According to the authors: “Our studies portray a society moving into an era where we measure the quality of our lives in social terms before economic ones. Forty-three percent of Americans believe the recession has positively affected their lives. With this kind of positive reinforcement, we now see the potential to maintain a healthy balance between our consumer and non-consumer sense of selves.”

More specifically, across a sample representative of the US population in terms of gender, income, race, age and region:

  • 78% agreed the American Dream has died — people now see how the dream had become defined in terms of material possessions rather than freedom and ideals
  • 88% took steps to spend less
  • 83% made permanent changes in spending and saving behavior
  • 51% planned to give time and/or volunteer as a gift this past holiday season
  • 83% planned to spend more time with family and friends over the holidays than they had previously
  • 61% de-cluttered their home and/or consigned items

The magnitude of these changes, documents over the course of two research studies, is startling.

The report profiles four new segments of consumers, each likely to have distinct needs from products and services.

  • Rational: Understanding true value and how things fit into your life (26%)
  • Relational: Putting social relationships over transactions (23%)
  • Balanced: Spending with thought and care, but with some fun too. (26%)
  • Joyful: Experiencing true joy often from non-consumer spaces (25%)

Add in the fact that Generation X and Y workers are seeking more meaning from work, and you can be sure that your business is facing a steady headwind of change.

The Recession Has Changed Business Behavior – Forever

Another shape-shifter is the extent to which businesses have learned to produce a lot more with less as a result of the considerable belt-tightening the recession forced. Undoubtedly many businesses tightened their belt too much, which opens the door to new B2B business models. How can you help your customers “right-size” while still retaining the lower-break even point their downsizing created? One of my clients, a remarkable start-up named Pinstripe led by HR-industry dynamo Sue Marks, enables its clients to outsource recruitment and screening of workers, speeding up hiring and improving the quality of the hires.

The Business Model Lesson

Remember, when external changes occur in your markets, you and all your competitors go back to START, where a new competition unfolds. Change obsoletes leaders’ advantages and creates openings for new entrants and former also-rans. The new winners are those leaders who accept rather than fight the change, and align their company’s business model to the changing environment.

What recession-induced changes do you plan to capitalize upon? What might your competitors be planning?

For insight on business model innovation, read my recently released book, Beyond Price.

3 comments to Market disruptions demand business model innovation

  • Hi Kay, I rather hope that hope will re-enter the equation. When I hear 78% of those interviewed feel the American dream has died I worry about self fulfilling prophesies. There is no question that business models have and must change in reaction to the seismic shifts we’ve been hit with (I don’t think my grandmother ever stopped hiding money in the mattress as a result of living through the great depression) but if that behavior is completely based on a lack of hope in the American future I’m not clear where sustained growth will come from.
    .-= Fred H Schlegel´s last blog ..It’s In The Details =-.

  • Fred, Your concern is a valid one. Once we get out of the recession in terms of job loss, and savings helps many households create a more secure balance sheet, we will see consumption increase. (Retail spending is at 2000 levels.) The point of the research (and why I shared it) is to say the composition of this spending will change. Consumers are looking for more meaning and genuine value (internally felt as opposed to externally defined). This has important implications for brand platforms, company’s social responsibility approaches and, in your line of work, how brands are communicated. Changes are neutral. What we do with them is what creates opportunities or threats.

    I will admit to being influenced by Western Europe where I live part time. Consumption is lower here, yet people are happier by many measures. What might companies learn from who has and has not succeeded in Western Europe?

  • [...] The American Dream Dead? Feb 8th, 2010 by Fred H. Schlegel. In describing why business models must change, Kay Plantes pointed out a study that indicates 78% of respondents believed the American Dream has [...]

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