Category Archives: Business

• How to thrive in a downturn – Part 1

  Thursday, October 16th, 2008 by Wes Ball

  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…

  1. 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
  2. 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.

  Posted in Applying "The Alpha Factor", Articles, Business, Innovation | Comments (0)

• Wal-Mart proves its Alpha strength as economy dips

  Monday, October 13th, 2008 by Wes Ball

  Wal-Mart , one of the Alpha companies covered in The Alpha Factor, is up in per-store sales about twice as much as its key “discount” competitor both for the year and for the worst two months in retailing so far.  It’s not because they have the lowest prices (which they don’t); it’s because they are an Alpha that is positioned exactly right for the current market conditions.

  We’ve just gone through two of the scariest economic months possibly since the Great Depression.  Businesses are scrambling to the storm cellars.  Consumers are zipping up their wallets.  And retailers are discounting everything in sight trying to get people in the door.  In the meantime, Wal-Mart has quietly gained more in US per-store sales both for the year and for the five weeks ending October 5 than its competitors.  Target, arguably its chief rival, is only up half as much in this weak economy.  Kohls was down 5.5% in per-store sales for the period.

  I’ve already written before about the resilience of some other Alphas as economic fears escalated through the past several months.  In recent articles, I described how Mercedes resisted a sales downturn much better than any of the lower- or higher-priced cars in the marketplace, as customers seemed to trade up to the low-end of the Mercedes line in enough volume to overcome the slowdown in the middle of their line.  John Deere has also outstripped its category sales growth around the world, despite the ready availability of lower-priced “quality” products.

  After reading The Alpha Factor, a lot of people were surprised and a bit confused that I included Wal-Mart in my list of Alpha companies along with many “high-end” companies like Mercedes, John Deere, and Victoria’s Secret.  They mistakenly concluded that Alphas are only in the upscale markets, but nothing could be further from the truth. 

  Using the Alpha Model to become more resilient:

   

  • Being an Alpha (or even just gaining the benefits of “Alpha-ness”) has nothing to do with what market segments you sell or the price you choose to charge. 
  • It has everything to do with what emotional needs you are satisfying and how you prove that through functional performance. 
  • When a marketer takes advantage of the opportunities available to fulfill customers’ higher-level emotional and ego needs at a level above that of other competitors, it makes itself capable of driving higher profitability no matter what the economy is doing. 

   

   

  The only trick is that the emotional fulfillment being promised has to be proven out rationally through some functional performance differentiation.   As I have discussed many times before, that differentiation does not have to be anything dramatic or really significant, but it must be something the customer can believe and use as justification for their perception.  I have seen things as simple as a warranty hand-signed by the president of the company create enough unique confidence to generate amazing increases in profitability ad customer loyalty. 

  What has made Wal-Mart an Alpha?  Wal-Mart has positioned itself as the “smartest” place to buy just about anything.  It proves that through having a great selection of things people want to buy (recognizable brands, store brand alternatives, and just enough choices to make a customer feel that they have “shopped”).  Its proof is not through having the lowest prices (which it doesn’t), but because it recognized the value of helping people feel smart about how they are spending their money.  Making customers feel smart is one of the most frequent and useful elements of Alpha marketing, because it encompasses both the “self-satisfaction” and “personal significance” factors.

  Wal-Mart is the first place people think about as the safe haven for shopping, when things start to look tight.   Don’t try to convince them that they can get a better deal somewhere else.  They have already made up their minds that this is the smartest place to buy, if for no other reason than because other retailers are so terrified of them.

  What can we expect from other Alpha companies during the current economic downturn?  Certainly many of the Alphas that focused heavily upon more upscale customers will see a slowdown as mid-income customers, who aspired to buy their products, fall away for a while.  But we should not see these companies dropping as precipitously in sales and profit as most of their competitors.

  We’ve already seen that in the auto industry.  Mercedes and BMW, two Alphas mentioned in the book, have not been hurt nearly as badly as have Toyota, Honda, Nissan, Mazda, GM, Ford, and Chrysler.

  Some of the Alphas I mention in the book have made dangerous mistakes since the book was completed that have significantly undermined their “Alpha-ness.”  Harley-Davidson and Starbucks are two that have caused themselves great harm by forgetting what made them Alphas.  They were already in trouble before this downturn even showed itself.  It will be interesting to see if any of the residual strength an Alpha inevitably has even after making devastating mistakes might help carry them through this.

  What does all this mean to the average business?  Start using the Alpha model right now to not only create new growth or limit any potential downturn while others sit back in fear, but also to make yourself significantly stronger on the backside of the downturn.

  Couldn’t you just wait until it’s all over?  Not if you want to make big jumps in market share and market influence.  There is no better time than during a recession to make those big gains, because every one else is doing exactly the wrong thing. 

  Posted in Applying "The Alpha Factor", Articles, Business, Innovation | Comments (1)

• The answer to thriving through the financial “meltdown” is in an unlikely place

  Wednesday, September 24th, 2008 by Wes Ball

  Every marketer has good reason to be worried about the effects of the current financial “meltdown.”  But this could be the best time in years to create dramatic, sustainable growth without huge investments in innovation or marketing.

  This current crisis is the result of long-term mistakes, and it probably won’t be an easy fix.  Even though the government is certainly going to step in and take some of the immediate pressure off short-term money, there is reason to be conservative about longer-term effects.  And that’s exactly what your competitors will be doing:  cutting budgets, keeping low, maintaining the status quo.  

  Every time we have seen a situation like this, we have been able to help a few forward-looking companies make huge jumps in sales, profitability, and market share.  And they were able to do it for a fraction of what their competitors were spending to just maintain things the way they were.  Because the secret to creating sustainable growth during such times is not in expensive product innovation or other major changes.

  The answer to not just surviving it, but also to creating dramatic, sustainable sales and market share growth right now comes from a very unlikely place.  And because the need there is so high, you don’t even have to invest all that much to get significant gains.

  What most companies have failed to recognize is that the current market share positions of any given product or service category were created more by the lack of competitive pressure than by the presence of it.  In every research study we have conducted, there are huge unfulfilled growth opportunities that have been overlooked simply because everyone assumed that they had to do things the way the top guys do it.  So almost everyone ends up reinforcing the strengths that the top guys used to become the top guys.

  The real secret is to be “disruptive.”  But not with product innovation.  Disruptive product innovation is far too costly for this kind of environment.  Instead, you do it by using the Alpha Model.  Understand first of all that in every product or service category most customers feel unfulfilled and under-satisfied… no matter what they have been telling the companies from whom they are buying.  These customers are just waiting for someone to figure out how to make them feel better about themselves, when they buy or use a product, and to make them feel that others feel better about them, when they buy or use that product.  Time and again, we have discovered that even highly-loyal customers of well-entrenched brands will change their buying habits to a product, service, or company that fulfills these “ego-satisfaction” factors better than their current supplier does.

  And it happens faster and for less investment than most companies would ever believe, especially when everyone else is terrified and standing still, as is about to happen in the marketplace.  This is indeed probably the best opportunity I have seen in decades for creating dramatic changes in market share for small investment.

  This is the secret that made the poorest-earning investment product in America (U.S. Savings Bonds) create double-digit growth, gaining more than $2 million per week in new sales in the late 1990s, when the stock market was averaging three to four times higher earnings for the average investor.  It’s the same method that more than doubled per store sales for Subway retailers while reducing discounting, when almost every other competitor offered a better product selection at similar or better prices.  It’s the same way we tripled market share for the “worst-tasting” food product in its category, making it the number one brand, …again while reducing discounting, without changing the product formulation, and without spending more than 25% of what any of the top brands were spending on advertising and marketing.

  The answer is in understanding and using the Alpha Model to change customer expectations in ways that supersede product performance or quality or price.  Customers are vulnerable to competition because so few companies have figured out how to fulfill basic customer ego-satisfaction needs, which are far more important to driving buying decisions and loyalty than are functional product performance or quality. By understanding how customers wish they could bond emotionally to products in your category, you can create growth no matter what is happening to everyone else in the category.  

  It doesn’t matter what the economy is doing.  It doesn’t matter what your competitors are doing.  It doesn’t even matter what your retailers or distributors are saying or doing.  You can create growth in any economy and leave your competitors wondering what happened to them.

  So, instead of worrying about how to just stay where you are, spend the same money you would to maintain the status quo and use it to make yourself the Alpha in your category, using customer ego-satisfaction as the key.  Change customer expectations through addressing unmet ego-satisfaction fulfillment using the Alpha Model, and you can drive growth no matter what the rest of the world is doing.

   

   

  Posted in Applying "The Alpha Factor", Articles, Business, Innovation | Comments (0)