In an earlier post I discussed P&G’s experimentation with lower cost offerings. The company’s recent analyst call confirms management’s commitment to chase the growing pool of frugal buyers, a response to what the P&G CEO’s calls “the new normal.”
On a recent shopping trip with my daughter in advance of her return to college I easily identified other companies that “get” and do not get the new normal. BBCG, the brand my daughter yearns for yet cannot afford (unless there is a really great sale or a birthday check is in her hand) significantly lowered its entry price points on this season’s clothes. Same great look and high quality, and what I suspect is a less expensive fabric and simpler lines to sew.
The saleswoman at SAKS (where we ended up after outlet stores turned up no shoes that fit) reminded us that we could save 10% if we opened up a charge card. The sales woman at Neiman Marcus (which we went to before SAKS), on the other hand, told us we could only use the American Express or Neiman Marcus charge cards, trying to convey an image of “elite” that has no place in the current US economy. I looked at the woman and said in the most sarcastic tone I could find, “You’ve got to be kidding. In this economy you’re willing to have me not buy these shoes because I do not have the right credit cards?” She recited the memorized company response about Neiman Marcus’ exclusive relationship with American Express, rolling her eyes at the word exclusive.
While it’s easy to pin every company’s revenue issues on the recession and the post-traumatic stress disorder most consumers are walking around with, and to respond to the “new normal” merely by cutting prices and costs, I caution you against this. The bigger picture to remember is that customer needs are not fixed in stone. Time changes the relevancy of different categories and size of different segments and smart companies stay attuned to these changes. Remember also that unless you have the lowest cost structure and can win at the price game, you still need differentiating benefits to earn profits that exceed your cost of capital. BCBG understands this and is not discounting its “better style” to lower its costs. SAKS is finally adding empathetic service to its brand promise.
Here’s my #1 suggestion for riding the “new normal.” Build a stronger market understanding process.
Every company has a financial understanding process – data is collected, interpreted, saved, and used in company decisions. The CFO is in charge of this vital process. But way too many companies leave the market understanding process to serendipity, to a sales force (who only care about information that affects this month’s or quarter’s orders) or to a marketing department trained in communications, not research. Spend some time mapping how your financial understanding process works and thinking about why it helps your company – then step back and map your company’s market understanding process. The differences between the two are likely to startle you.
With a strong market understanding process you’ll not just track what’s changing within your customer base, but you’ll gain insights into new market segments and categories offering opportunities for growth. You also pinpoint potential threats to your business you might otherwise be oblivious to.
Leading without financial information is akin to driving blind. Leading without market information is driving with a car that’s about to fall apart.
For insight on business model innovation and the perils of commoditization, read my recently released book, Beyond Price.