How consumer marketers can grow stronger right now
Let’s get past the fear that the world is collapsing. It’s really not. Yes, there is certain to be inflation worldwide with all the taxpayer money being thrown into the banking industry throughout the world. There may actually finally be some recessionary period, after the media has been trying to convince us that we were in one for the past year despite continuous growth in the economy. (Figure that one out.)
What is true, no matter what is going on with the economy, is that people have needs. And marketers are there to fulfill needs in order to gain a profit.
The only things that change during an economic downturn are…
- people are much tougher assessing whether the product or service they want to buy actually fulfills the needs they have (so we have to be even smarter at recognizing the needs that will be fed over those that will be set aside until later) and
- ego-satisfaction needs are magnified dramatically (which means that the Alpha Factor model works even better).
People always make buying decisions with ego-satisfaction as the strongest deciding factor, when it is made available. When people are offered a product or service that meets the minimum functional performance needed AND more ego-satisfaction than competitive products, they will overwhelmingly choose that product or service… even if it costs more (within reason).
How people feel about themselves (i.e. “ego-satisfaction,” the key element that all Alpha companies use to create sustainable dominance) is not just the most critical element in buying decisions during good times. It is, to an even greater extent, the core of buying decisions during tough times.
In every recession, sales of alcoholic beverages grow dramatically. Why? Because people are feeling bad about themselves and their ability to be the person they wish they could become. They want to get rid of that pain, and alcohol becomes a tool they believe may help. They are not finding the ego-satisfaction they desire, so they find an alternative way to relieve that lacking. No, that’s not healthy, but it indicates the level of pain that occurs when ego-satisfaction is not being fulfilled. The fact that this pain increases during tough times is why a business using the Alpha model for innovation can create growth, no matter what is happening to anyone else in the category.
In my last post, I noted that many of the Alphas mentioned in the book are doing better than their competitors despite the economic downturn. Wal-Mart is doing twice as well on a per-store basis than its chief competitor. John Deere is outstripping its competitors by a significant margin. Even Mercedes is not hurting anywhere as badly as lower-priced automakers (and most higher-priced ones, as well). These companies only have one thing in common: they are each an Alpha company. The result is greater profit and sales performance no matter what the economy is doing.
Apple as also done extraordinarily well, while its competitors are feeling faint. That’s why it’s so disconcerting to see them starting to discount their products. That will only work and allow them to maintain the new Alpha status they have gained, if they do not raise prices later and expect customers to follow along.
What we can expect to see
We can most certainly expect to see customers looking for ways to not spend as much. Depending upon the severity of the downturn, that may mean cutting out the “non-essentials” (which translates to be things that don’t fulfill a critical functional need – at least in their minds – AND that don’t fulfill their ego-satisfaction needs). That could include dropping the newspaper subscription or changing to a store brand of a product that they regularly buy (but from which they receive no strong ego-satisfaction) or cutting out the stop at McDonalds for breakfast or other things that really don’t reach into how they feel about themselves.
It may even mean changing the way they do some things that does not result in feeling that they are “doing without.” They may reduce the number of unthinking car trips to the grocery store, planning out trips instead to minimize fuel costs. It may mean experimenting with different buying patterns, but again, only as they do not impact how they feel about themselves.
Consumers will only make choices that affect the way they feel about themselves when faced with critical stress and for short periods of time. That’s why addictions are so hard to break.
What we have seen in every recession since the early 1980s (when we started watching these things) is that people can only sustain such “sacrifices” for a short period of time. Then they start looking for quick ways they can satisfy their missing ego-satisfaction fulfillment. Ben & Jerry’s ice cream really started its growth coming out of the recession of the early 1990s. As I note in The Alpha Factor, we discovered that 80% of people who claimed to “only buy whatever ice cream is on sale” regularly purchased Ben and Jerry’s as a secret splurge.
The fact is that people will not give up those things that make them feel better about themselves or that make them feel others think better of them, except for short periods of time. The greatest vulnerability is among those products and services where the cost of the item alone was the reason for it making them feel better about themselves or for making others think better of them (as in the case of designer clothing or other conspicuous consumption items). If there is no other functional rationale for buying that product, it will probably get hurt when its customer base feels a monetary pinch. Also, when things get really tough, it suddenly becomes gauche to flaunt such conspicuous consumption. So, they simply buy less-expensive versions of the same thing until they can justify going back again.
Such changes in buying behavior last only as long as customers can stand sacrificing (or until the economic cause disappears). Then customers roar back to the products or services they sacrificed that had satisfied their ego-satisfaction, often buying at an even higher level than they had originally, IF that product or service was not undermined by the company discounting or otherwise undermining its Alpha strengths. Those products that fell into the trap of trying to compete in desperation during the downturn fall by the way, while new ones that built upon Alpha principles during the downturn rise to the top.
What does this all mean to you?
For any company who wants to maintain its sales and profitability during an economic downturn at least as well or better than competitors, using the Alpha model is the answer. If you also wish to come out stronger at the backside of the downturn, the Alpha model is imperative.
It really doesn’t matter if you target a low-end customer or a high-end one. The principles are the same. Alpha companies with a focus upon making a customer feel smart through offering lower prices (such as Wal-Mart) may seem to have an easier time than a John Deere or a Mercedes, but the truth is that any company using the Alpha model will do better than its competitors AND come out stronger at the end of the downturn. The key is in managing expectations so that you don’t slide into “competing,” which is the poison that most companies take when things get tough, thinking they are gaining something.
So…
- Don’t believe that you have to follow the pack into discounting and other profit-robbing promotional offers. They harm you now, and customers remember how little you valued your product even after times get better.
- Look for ways to appeal to the self-satisfaction and personal significance needs of your customers. This can be as simple as making sure the customer service training you never really put in place is not only in place, but is being taken seriously. It may require revamping of your approach to satisfying customer needs that has been overdue for some time, but you thought you could get away without addressing. It may require some deep analysis of what customers have NOT been telling you and your researchers (but have been telling other people) they really desire but aren’t getting.
- Innovate, but not necessarily with new or better products. Focus instead upon how to create new and higher customer expectations than your competitors address, especially in ego-satisfaction. Product innovation can often be helpful, but a downturn is usually the worst time to introduce new products UNLESS they drive and satisfy emotional, experiential, and ego-satisfaction needs. Product innovation is far more costly and less effective almost any time than is innovating new ways to drive higher experiential expectations, but especially in a downturn (or a feared one).
How can you innovate to drive new, higher ego-satisfaction expectations? Start by changing your marketing research from looking at what happened yesterday and from believing the superficial answers most customers give to researchers (such as, “Price was the deciding factor”). Delve deeper for things customers wish they were getting, but aren’t. Most importantly, discover the things they never even mention, because they don’t believe products in your category can be expected to satisfy those needs. Then innovate to satisfy those things that you can to address at least satisfaction and possibly even significance.
The principle to remember is…
Once you have satisfied minimum functional performance, you only have to satisfy more and higher emotional needs than your competitors to take control.
Once you have accomplished that and customers start to recognize that fact, you have started to control expectations of customers. Once you control expectations, you control the category and your future, while everyone else has to follow your lead.
And that means you are on the path to becoming an Alpha.