I attended an economic briefing from the Chief Economist of a major European bank yesterday. It was fascinating to hear the financial crisis and recession described from the perspective of the OECD, where the recession has been much worse than in North America. For example, Germany’s GDP fell 6.5% from its peak, with its manufacturing down 25% and exports down 26%. And despite massive European fiscal and monetary stimulus, his expectation for 2010 and 2011 is slow OECD growth, as is mine for the US economy.
His most insightful comment was a quote from a UK central banker, “It’s about the level, stupid,” an analogy to Bill Clinton’s 1990’s campaign comment that helped him knock George Bush out of the U.S. presidency. The gap between actual economic performance and full-capacity economic performance is so great across the industrial world that the excess capacity will drag down income, earnings, job creation and investment spending for at least the next two years.
I am in Oslo, Norway as I write, here for a week to see my fiancé who runs an Oslo-HQ global biotech business. Walking home from the briefing I could not help but think about the role beauty plays in Oslo. (The store photos are from my walk to and from the briefing.) Exquisite architecture, curved streets, central circles, sculpture everywhere and small shops create an invitation to sit at a coffee shop or outdoor bar (a major pastime here until the sun all but disappears) or visit the shops. One child’s clothing store window is so becoming it almost makes me want to be a grandmother (not quite). Think about the appeal of your favorite magazine’s photo-spreads (be you hunter, globe-trotter, teenage girl, or homeowner getting ready to remodel) – the ones that make you want to “be there” or “have that right now.” Now imagine that magnetic-like appeal created on city streets. That’s Oslo.
Given the slow recovery, every business needs an equivalent level of attraction (in the minds, eyes and emotions of its target customers) to hold share, gain share or move into new markets. Why? Because there are more reasons today to not buy, to buy less or to buy at a lower price than to buy at pre-2008 levels. The cause? Extraordinary economic uncertainty, more than we’ve had since the mid-1970s out-of-the-blue OPEC oil-price shock.
Overcoming this hesitation to buy becomes job #1 for sales, marketing and the operational troops that create the offerings you want to sell. What does this requirement demand of leaders?
First, make sure your organization has a compelling value promise behind all its offerings, one you can reliably deliver upon. If you do not have one, decide on one you could aim towards. A relevant and differentiated value promise is the bull’s eye of business model innovation.
Second, build hard-to-copy advantages that allow you to deliver on your value promise. The scope of your products and services, another part of the business model, can sometimes be part of your advantage. But culture and organizational skills are much harder to copy.
If you lack advantages, start creating them. Creating advantage is a far more important aim than cost containment today. Furthermore, once you know your value promise and advantages, cost containment will be a lot easier as you’ll finally be able to identify costs that are of no benefit to customers. It’s why I always say “Pursue business model innovation before you spend another dime trying to compete on the same terms and with the same business model as that of your competition.”
Finally (I can’t believe I am going to say this as I have always thought that substance is more important than style) in today’s markets, do not under-spend on the appearance of your product, the way it is presented and who is presenting it. Get the look and the voice right. In today’s more challenging markets you need to help your customers overcome resistance to buy.
Apple’s I-phone wins on ease, but it’s truly exquisite appearance made it a lot easier for people to fork over a $100+ premium. Apple’s bottom line shows that appeal has a high ROI.
What’s your company’s appeal?
For insight on business model innovation and business model strategy, read my recently released book, Beyond Price.
Brad Shorr says
Hi Kay, This post is incredibly interesting. I am so taken by this thought: “If you lack advantages, start creating them. Creating advantage is a far more important aim than cost containment today.” If those words were on a plaque over the entrance of every business in the U.S., the Dow would hit 15,000 within 12 months. Unfortunately, a lot of companies take things a step further than you – in the wrong direction. In their efforts to contain cost, they actually weaken or outright destroy the competitive advantages they do have.
.-= Brad Shorr´s last blog ..Use Trade Shows to Boost SEO =-.
Kay Plantes says
You are 100% correct. No one will pay you for inefficiency. But what is inefficient depends upon your value promise. Some might deem Apple’s industrial design investment as inefficient. This might explain why Dell fell behind.
Fred H Schlegel says
Hi Kay, Style is such a maligned word, I’m glad to see you coming around 🙂 The expression ‘style over substance’ many interpret as a slam on style, when actually it is a slam on a lack of substance. I think where things get murky is when the concepts of style, fashion and status get mixed together. Since status is usually related to rarity – cash outlay ends up being the big scorecard, encouraging designers to move in directions that may lack substance but justify price tags.
So a call to focusing on style, not status, can do many things for a business that can surprise, entice and energize customers in ways that can even improve function. The trick is having the good taste to not go overboard with gold plating when a nice aluminum finish serves better.
.-= Fred H Schlegel´s last blog ..The Increasing Cost Of Bad Behavior On Innovation =-.