Archive for March, 2010|Monthly archive page
It is not an understatement to say that the current recession has been the worst slowdown since the Great Depression. For the first time in almost 80 years, US per capital spending has fallen two consecutive years. According to a recent Booz & Co. study, this recession has triggered a seismic shift in consumer needs and spending habits towards value enhancement. This change will have painful implications for unprepared firms in the consumer goods, retail, entertainment, hospitality and apparel sectors.
This ‘new normal’ will likely persist even after the recovery gains more momentum due to many factors: high levels of household debt, lower employment and an aging population. As well, existing trends will continue to encourage frugality including: higher Web usage (for shopping and research); the growth of private label products and; the rising importance of discount sellers like Walmart and Amazon.
On two different occasions, Booz interviewed 2,000 US consumers across demographic, geographic and socio-economic lines to understand their spending plans, habits and behaviors. The conclusion? a wave of frugality is sweeping all demographic groups and segments. Higher levels of belt-tightening were noted among women and lower income groups. Other key findings include:
Consumers are driven more by price considerations – Conspicuous consumption has been replaced by a new value consciousness that dictates trade-offs between product performance, brand image and price. This trade-off is manifested by increased levels of online comparison shopping; trading down to lower-priced private label & value brands and a higher frequency of coupon clipping.
For the majority of consumers, value has become the most important purchase attribute – Right now, value brands are perfectly positioned to exploit consumer frugality. However, consumers will continue to buy higher price point products as long as those product’s performance and image can clearly justify a price premium versus lower cost alternatives.
Traditional segmentation strategies may miss new value seekers – Traditionally, retailers and marketers segment consumers primarily by demographics. However, the study presents a more nuanced view of how consumers could be segmented by value-seeking behavior. For example, 68% of all consumers reported exhibiting higher price sensitivity and increased value-centered activities. These activities include higher online usage (e.g., searching for lowest cost items, purchasing through online discounters) and increased purchases through lower cost offline retail formats.
Firms can take a number of steps to mitigate revenue risk and build market share:
1. Continue to drive product and brand differentiation
Negative growth periods often trigger heavy price discounting as firms look to protect market share. To sustain this, firms usually dial back on differentiation-enhancing plans like advertising and functional upgrades. This approach is misguided as declining differentiation reduces brand price premiums and harms competitiveness versus private label or low cost alternatives. Companies must maintain their focus on differentiation by continuing investments in advertising, the customer experience and product performance.
2. Improve the value proposition
Decreased consumer spending does not automatically lead to value brand share increases. Many best practice leaders like P&G, Benckiser and Kelloggs have maintained share in difficult times by improving product performance & convenience, right-sizing formats, and clearly communicating and aligning pricing levels (for consumers and retailers) to product value.
3. Optimize the Customer Experience
Look for opportunities to improve value and differentiate along the entire purchase and support spectrum. Enhancing the customer experience can improve loyalty, foster cross-selling & up-selling and increase customer satisfaction. Properly executed, customer experience initiatives can also raise operating efficiencies and reduce cycle times.
4. Know your consumer better
In order to sustain and communicate value, the ‘new normal’ requires companies to deepen their understanding of consumer’s needs and habits. To do this, firms could undertake new segmentation strategies based on purchase behavior as well as using advanced qualitative research tools to explore sub-conscious and cultural drivers of behavior.
5. Maximize opportunities for on and offline distribution
New retail formats like kiosks, co-branded stores as well as fully built out e-commerce platforms are 3 examples of how companies can simultaneously improve product distribution and reduce risk at a lower delivered cost.
For more information on our services and work, please visit the Quanta Consulting Inc. web site.
The planets GM and Ford may be perfectly aligned for a startling comeback. Toyota, long considered best in class for quality and manufacturing, is staggering from major product recalls of 8 million vehicles. Their recent results are bleak; Toyoya has been hit by double-digit declines in market share and profitability not to mention serious reputational damage.
At the same time, GM and Ford have been slowly emerging from the throes of a near-death experience. GM has been bolstered by government funds, the culling of redundant brands and union concessions. Ford has benefited from early moves to improve quality, divest weak divisions and raise debt. Both firms have been handed a once-in-a-generation chance to improve their image and recapture 20 years of lost market share. Can they pull it off?
Much will depend on if GM and Ford 1) can continue the substantial improvements made over the past 3 years in reliability, design and production efficiency (according to analysts and consumer surveys) while 2) still hoping Toyota continues its rocky ride.
Like Toyota, Detroit has belatedly discovered the religion of reliability. In the past, passenger car reliability was ignored as GM and Ford relied heavily on highly profitable (albeit gas guzzling) Pick Ups and SUVs. Reliability only mattered until the warranty period ended. However in 2008, GM and Ford’s vulnerable product portfolios were hit by the double sales whammy of a harsh recession and $140+ per barrel oil pricing. Consumers either stopped buying altogether or quickly shifted to less expensive, value-driven passenger cars. As a result, corporate profits and overall market share plummeted, threatening the viability of each producer.
This shock triggered a rapid reassessment of the business from executive management down to the line worker. No longer could they ignore the cost, brand and pricing implications of poor quality. Detroit’s culture changed because it had to. The core mission of both firms went back to their roots: build attractive, interesting and reliable cars that address current and emerging consumer needs for the markets that matter. The longer term focus these days are on achieving high ratings on independent benchmarks such as Consumer Reports magazine and J.D. Power Associates.
Once attitudes change, better quality-focused processes and reporting systems must follow. GM and Ford understand that if they wanted to emulate Toyota, it isn’t good enough talking about quality; you have to develop new design, purchasing and production competencies that built long term reliability into every vehicle. So far, they are making significant strides. As an example, at Ford it now takes 72 hours (versus 30 days in the past) for a warranty claim problem to get back to the design engineers and suppliers for troubleshooting. In other case, GM vastly increased the amount of punishment each model is designed to endure. GM used to build vehicles to a certain mileage requirement. Now, they’re built not to fail.
Because so much of a car’s value is delivered by external suppliers, achieving systematic change would be next to impossible if there were not improvements in the traditional manufacturer-supplier relationship. Until recently, GM and Ford pursued an adversarial, almost cutthroat relationship with their suppliers, usually purchasing exclusively on price. In contrast, Toyota views their suppliers as partners in the business and work together in many areas including shared R&D and training.
Of late, GM and Ford are working hard to redefine the way they works with many suppliers. For example, they now require collaboration between engineers and parts makers; new, jointly-managed troubleshooting processes have been set up and; both stakeholders now work towards shared long term goals around reliability and innovation.
It is too early to assert that GM and Ford will regain their lost glory. Toyota’s setback may not be anything more than a clumsy misstep. The next 12 months will be crucial to see if there will be a paradigm shift in the highly competitive automotive sector.
For more information on our services and work, please visit the Quanta Consulting Inc. web site.
The holy grail of CRM, the ability to leverage and monetize internal data, is now within reach of most medium to large enterprises. Low cost computing power, new software tools and sophisticated math skills have converged to enable high-level data analytics, a powerful capability that can drive incremental revenue, improve workflow efficiency and enhance customer satisfaction. Basically, advanced analytics uses special algorithms to comb through large databases of transactions looking for important causal relationships between variables that can be leveraged to improve the efficiency and effectiveness of a program or process. For example, Internet Services and Retail companies are mining millions of their transactions to uncover critical (and hitherto unseen) insights about consumer and supplier behavior. In other cases, some firms in the Consulting and Software industries are using observations from their own mountain’s of data (as well as the clients they serve) to launch new practices focusing on data management and consulting.
The business of helping firms make sense out of proliferating data is growing quickly. This industry, which includes leading IT players such as IBM, SAP, Microsoft and Oracle, has estimated revenues in excess of $100B. The markets is growing at almost 10% a year, roughly twice as fast as the software market as a whole.
IBM is a pioneer in the use of mathematical models to analyze huge data sets. IBM’s analytics business began as an internal project undertaken by in-house mathematicians, who wanted to learn how to maximize revenue per client by analyzing years of sales data. The insights discovered in their work prompted them to retool their sales teams by account size & industry and to tweak their service offering. The result was $1B in new revenues and better sales coverage. Not surprisingly, IBM concluded that others could benefit from these capabilities and they built an entirely new business analytics and optimization group within IBM Global Business Services to support it. To date, this group has already trained 4,000 consultants
And they are busy. IBM mathematicians are using high-quantile modeling in its workforce analytics practice to help clients make decisions about human resources issues such as how best to deploy their sales people. In other cases, their mathematicians are using stochastic optimization algorithms in their human resources and marketing practice areas to help clients find new customers and determine the right mix of experienced and junior programmers to staff large software projects.
Walmart generates reams of data through their Retail Link inventory management system. The Company is using sophisticated analytics to crunch this data in a myriad of ways, turning information into a powerful profit accelerator. In one impressive example, Walmart’s analysis showed that they should offload inventory management to their suppliers and not to take ownership of the products until the point of sale. This new strategy allowed the firm to decrease inventory risk, conserve cash flow and reduce its costs.
Like many telecoms providers, Cablecom has grappled with churn. Using advanced data analytics, Cablecom discovered that although customer defections peaked in the 13th month, the decision to leave was typically around the 9th month (as indicated by things like the number of calls to customer support services). To reduce defections, Cablecom offered at-risk customers special deals 7 months into their subscription. The results were impressive: customer defections fell from 20% of subscribers a year to under 5%, enabling the firm to save significant marketing acquisition costs while boosting customer satisfaction.
Regardless of your data management objectives and strategy, there is gold in those terabytes of data.
For more information on our services and work, please visit the Quanta Consulting Inc., web site.