And so it’s been 80 years since Black Tuesday – the day in which stocks plunged by 12% (having fallen by 13% the day before) triggering the Great Depression.

If we were celebrating a marriage, we would be giving diamonds and pearls after 80 years.  Hardly appropriate today when consumers are shunning luxury goods and instead preferring to consume small luxuries such as Sprinkles cup cakes, candy and soda.  It’s a shame we aren’t talking about the 42-year anniversary because the appropriate anniversary gift then is improved real estate, or the 43^rd year anniversary where the gift is travel or the 44^th year anniversary where the gift is groceries (not all that romantic I know). But giving any of these gifts would certainly have the added benefit of lifting the economy out of recession.

We all know that consumers are spending less during this recession. Even if consumers can afford to maintain their lifestyle we see evidence of changes to spending: stealth wealth has returned where people who can still afford to consume luxury goods are having to hide the fact; or affluent deprivation where consumers feel poorer and so cut back on expenditure out of concern for their future and the impact rising health care costs, rising energy costs, depleted retirement accounts and likely increases in taxes to allow the government to repay the deficit will have on their lifestyle.

We wait with bated breath to see what the next 12 months will bring.

 

I read today that McDonald's has pulled out of Iceland.

The decision to withdraw is a combination of rising costs due to the weak Kronar against the German Mark (all products for McDonad's in Iceland come from Germany) and the inability to hike prices a further 20% to recoup losses. To raise prices would have made the Big Mac in Iceland the most expensive in the world.

For McDonald's, exiting Iceland is not the first time that the corporation has exited a country. Recent examples include Barbados in 1996 and Bolivia in 2002 (among others).

What is interesting to me is that we always expect big brands such as McDonald's to sustain anything that is put in its path both locally and internationally. In this case, the weak Icelandic economy was just too much. The same almost happened to Starbucks when it launched in Vienna, Austria (the coffee capital of the world). In this case, the problem was taking a standardized product and rolling it out internationally without knowing what local reaction would be.

Necessity is the mother of invention and the owner of the McDonald's Franchise in Iceland is going to reopen as Metro - this time, using local produce. What is likely is that by combining the McDonald's system with local tastes could result in some quite interesting innovations. I'm not sure how Starbucks influenced coffee consumption in Vienna or Vienna influenced coffee consumption in Starbucks but Starbucks is still in Vienna and, yet again, I am sure Starbucks had to make some adjustments in order to succeed.

 

 

 

Every now and then I come across an innovation that makes me stop and think “what a great idea” [or: “why didn’t I think of that?”]. It happened again the other night when I was watching television and I saw an ad for PowerMat – a wireless recharging device that will solve one of the BIG problems of today: how to find the right cords, and enough power sockets, to charge phones, hand held electronic games, MP3 players and the like.  For our family of four, this problem is exacerbated when we travel:  four cell phones, at least two iPods, and at least one PSP to charge in a hotel with only two available power sockets, all of which have to compete with the laptop that also needs to be recharged. For some reason, I am the one who usually sneaks around the hotel room at 3 in the morning to switch over devices so everyone is charged up and ready for the next day.

There have been other innovations that have made me stop and think “what a great idea”: wheels on suitcases, an idea attributed to Northwest Airlines pilot Bob Plath in 1989; cell phones, which were first available commercially in 1984; Post-it Notes, which 3M started distributing in 1980; the revolutionary Pampers disposable diaper launched by Procter & Gamble in 1961; or the Swifter, another Procter & Gamble invention, launched in 1999.

What binds these ideas together is that all solve consumer problems: finding cords and power sockets to recharge devices, carrying suitcases around airports and hotels, being accessible by phone when away from the office or home, keeping track of pages in a document or book, no-fuss management of diapers, and cleaning surfaces without breaking backs.

Something else common to these ideas is that consumers are not likely to have been able to articulate the solution – i.e., consumers probably did not say: “I have a problem when I charge electronic devices because I can never find my the right power cords or enough power sockets. Can you develop a wireless recharging device for me?” Alternatively, consumers might have articulated the problem (or PowerMat developers might have observed the problem by watching consumers in action): “I can never find the right power cords to enable me to charge all of my devices”. Here, the problem was evident to PowerMat who then set about developing a solution.

I don’t know the story behind PowerMat but the process might also have begun with a solution, for example, wireless technology, looking for a problem. In this case, the technology existed but for the solution to succeed, the developers had to link it to a consumer need. Early indicators suggest PowerMat did uncover a substantial unmet need (the problem of recharging) and product reviews suggest that the PowerMat will be successful.

There is something else that binds together the examples I have used. In all cases, they led (or in the case of PowerMat, will lead) to a fundamental change in consumer behavior.  If PowerMat is in fact as successful as the early reviews suggest, it will permanently change the way we recharge electronic devices.  If PowerMat can stay ahead of the curve as competitors join this new market created by PowerMat, then it will be attributed with having redefined the way we do things.

As companies look for strategies to generate growth, that is innovative and exciting ways to redefine the organization post-recession, it is important to think in terms of the problems and solutions framework outlined above. That is, remember that not all consumers can articulate a problem they have with current product offerings. Plus, the majority of consumers are unable to come up with solutions to problems they have with current product offerings. To find exciting ways to generate growth then, marketing managers and new product development teams need to focus on problems, both explicit and latent, and set about finding solutions to these problems.  History tells us that sustainable competitive advantage comes about by developing innovations that solve consumer problems, innovations that shape behavior and create new markets.

 

I have always been intrigued by the idea of firing customers. During turbulent times, the pressure has been on managers to make decisions that allow the organization to build up substantial cash reserves. And so the challenge has been on understanding the profitability of customers and the cash flow implications of doing business with them

This kind of analysis begs the question then of whether customers should be “demoted” or “fired” customers.  Old news but still a good example is that of American Express, who offered to pay some customers $300 each if they closed their accounts with American Express by April 30, 2009. At the time, American Express was rightly concerned about the increasing risk of credit card defaults.

But what are the long-term implications of firing customers? It is easy to conduct a cost benefit analysis using numbers. This is what American Express no doubt did when it decided which customers to fire and what it was worth to incentivize customers to leave. What is more difficult, however, is to put a value on negative word of mouth, made even easier by social media. American Express has certainly had its fair share of negative word of mouth.

While we know that the economy moves in cycles and there was certainly talk of a correction before the recession hit. It was difficult, however, to predict the speed and severity with which the current recession hit. So, it is easy to be an armchair critic and suggest that organizations should avoid the acquisition of potentially unprofitable customers in the first place.

But even though customers are the reason you are in business, not all customers are worth retaining. A bad customer is one that will put the organization at risk financially. A really bad customer is one that not only puts the organization at risk financially but also jeopardizes the overall strategic position of the organization. Thus, it is important to understand both the financial and strategic implications of doing business with all customers.

As organizations are looking to implement marketing strategies for growth, good management and marketing practice should not be forgotten. Drucker’s five famous questions need to be asked: What is our mission? Who is our customer? What does the customer value? What are our results? What is our plan? Linking together Drucker’s ideas of customers and results, I’d add the question of how profitable is each customer group before going out and acquiring customers for the sake of growth itself. 

Last week, the Dow broke through the psychological barrier of 10,000 and many breathed a sigh of relief. The call went out that the economy was about to emerge from what can be characterized as the darkest period of turbulent times in recent history.

There certainly are green shoots indicating that the worst of the recession is behind us. When reporting relatively strong third quarter results for Google, CEO Eric Schmidt said, "While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future."

Similarly, Steven Bird of Safeway described his Coffee Index, a measure of consumer confidence (The Los Angeles Times, October 16). When the recession first hit, consumers switched from lattes to coffee and now Bird can see a swing back to lattes again.  Likewise, consumers are starting to shift back to premium wines.  All signs that some consumers feel that the economy has reached the bottom and we can start to return to some simple pleasures of life.

As we frantically look for evidence of economic recovery, we need to take care not to mistake all measures as signals that consumer spending is on the rise again. Take computers as an example. I read in BusinessWeek (October 26) that many consumers have put off buying new computers because they didn’t want to end up with Microsoft Vista. Now that Microsoft has launched Windows 7, a lot of people will be in the market trading in eight-year old machines. The point of this example is not to mistake an increase in the purchase of computers as a signs of economic growth.

The National Bureau of Economic Research (NBER) defines a recession as a “significant decline in economic activity spread across the economy, lasting more than a few months”. Gross domestic production (GDP) and employment are seen by NBER as the primary measures of economic activity.  When I talk to senior managers, many feel that sales are now flat and no longer declining. This is certainly encouraging news. Add to that encouraging quarterly results with supporting comments by CEOs that the bottom of the economic downturn might in fact have been reached.

But, predicting economic recovery is quite another story. In the State of California, for example, almost 1 in 5 people are said to be affected by the recession through job loss, or a reduction in hours and/or pay. Those who work for the State of California, fear that more bad news is on the way with State revenues likely to be about $1b less than what was forecast for the current year. Add to that the “Lost Generation” (BusinessWeek October 19), a generation of college graduates who have not been able to get work and who might consume differently as a result of the impact (both financially and psychologically) the recession has had on them.

The point of all of this is that while signs that the recession is drawing to a close might excite us, turbulent times will continue as we find innovative ways to generate growth. As James E. Skinner, the CEO of Neiman Marcus said, the recession “is forcing us to experiment”.

 

A couple of articles have caught my attention lately.  In the October 9 issue of the Los Angeles Times , Martin Zimmerman reported the results of a JD Powers study aimed at examining attitudes toward car ownership among those aged 12-18 and 22-29. Two things captured my imagination with this study. The first is that JD Powers analyzed data from social media sites such as Twitter, Facebook, Autoblogs and personal blogs.  This is not a new idea but clearly shows the opportunity to analyze the discourse of a target market without the influence of an interviewer or the constraints of the interview process. Plus, younger markets are notoriously difficult to reach using traditional marketing research methods. I think the use of these newer sources of data to understand a complex marketing problem is excellent.

Aside from the research method, I found the results themselves especially interesting.  Basically, Generation Ys question the economics of owning a car, see less need to meet physically since they successfully manage to keep in touch using other means of communication, and hold negative perceptions of the auto industry that might well influence future sales. We know that one of the negative consequences of the current recession is that consumers mistrust brands and corporations and the results of the JD Powers study certainly provide evidence of this.

The September 14 issue of Fortune ran a great story on the car sharing service, Zipcar. I had seen Zipcars around the campuses of the Claremont Colleges but hadn’t realized how much influence Zipcars had on car consumption.

The membership base of Zipcars is growing: 325,000 individual members, 8,500 company members, and 120 college and university campus members. Zipcars enjoys annual revenues of $130m and revenue is growing by 30% a year. Individuals who give up owning their own car to use Zipcar save $600 a month. In addition to the financial rewards, drivers of Zipcar also drive 44% fewer miles and each Zipcar removes 20 cars from the road as members either sell their cars or decide not to buy a new car.

What I find interesting is the impact car sharing programs such as Zipcar have on consumer behavior. Instead of buying a car, a member pays a basic membership fee, books a car online, pays an hourly or daily rate that includes gas and insurance and then picks up a car from a neighborhood Zipcar car park.

Like many things, we won’t know the final outcome of car sharing services. Will car sharing services facilitate a permanent change in consumers’ behavior – especially when we add the JD Powers research to the mix and realize that there might already be shifting attitudes and opinions toward car ownership. What does this mean to traditional rental car services or car manufacturers? What growth opportunities will car sharing provide?

When a marketer detects a change “going on out there”, the challenge is to recognize, filter and respond. That is, recognize the change in behavior, filter it through the mental models held of the industry, organization and brands. Part of the filtering process includes questioning assumptions held of the industry, organization and brands, asking what the change means for your organization and brands and what the change could mean for your organization and brands.  And finally, deciding how to respond.  This what Apple did when Steve Jobs detected a change in behavior with respect to music consumption: people were already downloading music from Napster onto MP3 players. Steve Jobs recognized this change and responded with the iPod and iTunes both of which not only changed Apple but also facilitated a dramatic change to the way in which we consume music.

At this early stage, Toyota and Ford, Hertz, Enterprise and U-Haul have recognized the change in behavior driven by Zipcar and identified the change as significant enough to warrant a response. It seems that all are working on car sharing initiatives: “The future of transportation will be a blend of things like Zipcar, public transportation and private car ownership,” says Bill Ford, the Executive Chairman of Ford.  As the use of car sharing services continues to grow we will no doubt see a series of other product, service and process innovations and the formation of new markets.

 

In my last blog, I wrote about the contribution of marketing strategy, and more specifically marketing research, to develop new recipes and ideas that will ultimately contribute to post-recession economic growth. I suggested that marketing managers need to pay more attention to the methods and approaches that will allow organizations to create customers, shape markets, and alter consumer behavior. Ideas that others will want to imitate.

I thought I would take a moment to provide some interesting examples to illustrate just how important it is to question the assumptions we hold of the market and the attributes that define a market if in fact innovation is our goal. The central message behind these examples is not to accept the mental models we hold of a market as being somehow cast in stone because to do so might result in missed opportunities to innovate.

In 1960, Theodore Levitt wrote a famous article in the Harvard Business Review called “Marketing Myopia”. In it he provided a quote from a 1936 National Wholesale Grocers’ Association Conference to describe the reaction of the Association towards supermarkets. Basically, the advice of the Association spokesperson was that there was nothing to fear – supermarkets would fail because all customers really wanted was a friendly neighborhood store:

“… there [was] nothing to fear. ...the supers’ narrow appeal to the price buyer limited the size of their market. They had to draw from miles around. When imitators came, there would be wholesale liquidations as volume fell. The current high sales of the supers was said to be partly due to their novelty. Basically people want convenient neighborhood grocers. If the neighborhood stores cooperate with their suppliers, pay attention to their costs, and improve their services, they would be able to weather the competition until it blew over”.

We all hold our own mental models of what “normal” is. Back in 1936, customers may not have imagined the concept of a supermarket, a larger store that offers more choice and lower prices. Similarly, customers may not have comprehended the need to travel further, to buy less frequently and to buy in slightly bigger quantities.  Therefore, if I conducted a study to investigate how to better serve customers of neighborhood stores, I would likely focus on the product range and aspects of customer service.  If I expanded the scope of my study to identify ways to create a new store format (in this case, a supermarket), then the concept might not test well because respondents would likely base their answers on what they know, that is on the current mental model they hold of grocery retailing. The outcome might have been an apparent unwillingness to buy from a supermarket. Yet, as we all know, supermarkets quickly became the new normal.

I came across more examples in the latest issue of BusinessWeek (October 12, p. 21), in which Ellen Gibson reviewed a book by Dennis Barron called A Better Pencil: Readers, Writers and the Digital Revolution. Barron outlined early reactions toward telegraphs, telephones and typewriters:

·      The telegraph might not succeed because “Maine and Texas, it may be, have nothing important to communicate”.

·      The potential of the telephone was not recognized because it did not provide a permanent record of a conversation.

·      Typewriters should not succeed because it would give too many would-be writers authorship.

These examples, yet again, illustrate the mental models held at the time – that is, perceptions of “normal” ways to communicate and write. Of course, and with the passage of time, consumers do adopt these new innovations, change their behavior and new markets form.

We have already seen the impact failing businesses have on the economy, this is why Peter Drucker always argued that it is the responsibility of managers to develop a competence in entrepreneurship, such that the organization can adapt and innovate in times to change – change that might offer the organization a sustainable competitive advantage.  The challenge, however, is to understand the mental models currently held of the market and instead of being constricted by these mental models, to use them as a starting place from which innovation and change occurs. 

 

Paul Romer, a Professor of Economics at Stanford University, is best known for his work on economic growth theory. In his words, “economic growth occurs whenever people take resources and rearrange them in ways that are more valuable”. Using the metaphor of cooking, Romer adds “economic growth springs from better recipes and ideas, not just from more cooking”. Where developing countries can enjoy economic growth by adopting ideas developed elsewhere, those in the developed world need “strong incentives for discovering new ideas at home”.

The Romer view was echoed in the latest edition of The Economist (October 3, 2009, p. 11), in which a number of recommendations were outlined for generating economic growth as the world starts to pull out of the current recession: (1) shore up demand without wrecking public finances; (2) contain unemployment without inhibiting the shift of workers from old industries to new ones; and (3) fostering innovation and trade. It is this third point, economic growth via innovation that I see as essential to any economic recovery. The only problem is that the benefits of investment in new product development are not likely to be felt in the short-term.

Marketing, but not marketing alone, plays a central role in flushing out better recipes and ideas. I suggest that for marketing strategy to contribute to post-recession economic growth, more attention however needs to be paid to the way in which new ideas are identified. What this means is that instead of being impressed by sophisticated marketing research tools and techniques (some of which might be appropriate to the problem at hand), marketing managers should focus on research that allows them to unveil the underlying needs and wants consumers seek to satisfy when using a product.

Put another way, many research methods – in particular, quantitative research methods, do not allow for an in-depth analysis of “Why”, but instead ask questions to identify “What?”, “When?”, “How?” and “By Whom?”. By not asking “Why”, marketing researchers miss opportunities to identify other ways in which to satisfy the same needs and want and the organization runs the risk of not identifying new ideas and recipes.

It is easy to illustrate with examples. Think of any product you buy and then think about the underlying need and want you seek to satisfy by consuming the product. I used to buy CDs because I wanted to listen to music in the car and at home. I used to send a fax as a quick way of sending a copy of a document. I used to fly to meetings because I want to talk to someone face-to-face. I have satisfied the same needs with different products: iTunes, scanners and email, and Skype. The point is that marketing managers need to immerse themselves in the world of consumers in order to truly understand the needs and wants consumers seek to satisfy by consuming a product, identify the potential problems consumers have with current product offerings, and then ask how else consumer needs and wants can be satisfied. This is where new ideas come from.

Peter Drucker argued that organizations should strike a balance between serving those customers it currently has and creating new customers. Against this backdrop then, I suggest that marketing research tools and techniques can also be broken into two categories: those that allow us to monitor how well we serve existing customers and measure how well we deliver on our brand promise and those that allow us to develop new market insights. To develop new recipes and ideas that ultimately contribute to post-recession economic growth means paying more attention to the methods and approaches that will allow organizations to create customers, shape markets, and alter consumer behavior. Ideas that others will want to imitate.