New consumers demand a new breed of innovations in the products and services they are using. Below, Peter Lorange and Jimmi Rembiszewski discuss growth and profitability, and argue that firms and societies must be open-minded in identifying relevant customers, and find entirely new ways to innovate and communicate.
Many fast-moving consumer goods companies, as well as many other types of firms, are following elaborate business plans, typically built around customer insights that may have developed over many years. But these current business plans may not work as well any longer. There seems to be a new breed of important consumers – “multitaskers” that are fundamentally comfortable with the new world of IT-based approaches to analysis and communication. Social media, the web, apps, etc. are central parts of their reality. These consumers do perhaps tend more to value dimensions such as quality and prestige. Lower costs per se may not be the only thing. We are probably no longer faced with what might be seen as a natural evolution of consumer tastes, but a true quantum change – indeed a discontinuity! This new breed of consumers seems indeed to be entirely different from what we have been used to so far.
These new consumers may demand a new breed of innovations in the products and/or services they are using too. These innovations typically may tend to be rather incremental, building on already existing product and/or services offerings. And it is key that these are coming about in a fast way – the modern consumers simply demand this! Not surprisingly, innovations that focus on creating prestige, status and quality tend to be more central. And, it goes without saying that an innovation must be truly appreciated by the modern consumer – if not it is indeed not a true innovation, but simply wistful “noise”.
[su_pullquote]This new breed of consumers seems to be entirely different from what we have been used to so far, and they demand a new breed of innovations in the products and/or services they are using too.[/su_pullquote]
Companies may find it useful to develop a notion of an “innovation gap”. This would be the imaginative difference between an ideal product and/or service offering to the new consumers and what the firm is offering as of today. With the typically constant effort to take out costs in products and/or services, rather than to focus on quality and prestige, this innovation gap typically can become larger-and-larger. We do indeed see many examples of how this can lead to lower margins and many companies can learn from the so-called luxury goods sector here! And, many can also learn from companies such as Lego. Strong innovations also typically appeal to the creative mind of the consumer – to allow him/her to “contribute” to him/herself.
To actively and effectively communicate, the key properties of one’s offerings to the target customer group is of course continuing to be as important as ever. In the past, heavy focus on such media choices as advertising and TV campaigns tended to be effective for reaching the consumer. No more: the modern multitaskers rely on entirely different channels for communication. They are more comfortable with social media, the web, apps… For them it is key that they get a sense of “one-to-one” marketing communication. This also implies more interactiveness. The modern consumer will typically have questions – and even suggestions for improvement. This means that the firm itself shall have to tool up for how to comfortably deal with such “activist – learning” consumers. To honestly listen, to provide fast and meaningful feedback, and to be able to rapidly modify one’s products and/or service offerings, becomes key. We can learn from companies such as H&M or Zara here. Speed in implementation is key, and this means better control over one’s value chain!
Now, in the end does it matter whether we have it right? – a realistic delineation of the key consumer group, with a relevant set of innovations that this group can appreciate, and with effective communication of this to these? The answer is YES – we hereby would, in all likelihood, achieve both more sales and at a higher price, i.e. an increase in profits as well. Both the top line and the bottom line would inevitably grow! Importantly, the concept of discounting would be on its way out. To resort to this would indicate that our product and/or service offerings would be lacking its relevance and appeal – the innovation gap would be high.
While the arguments put forward here may sound rather intuitive, they nevertheless have direct implications for how many corporations shall have to modify their management practices:
• Firstly, the development of a so-called “marketing plan”, and the traditional role of the so-called “product manager” shall fundamentally have to change. Now, it is more a matter of pulling together a holistic concept of relevant consumer understanding, effective innovations to these, and modern social media-based communication. The old concept of tweaking to allow lower cost as the panacea is gone! Traditional brand management is maybe out –therefore a more flexible approach may be called for that can stimulate the innovations.
• Secondly: The innovation process itself tends to shift from the large central R&D laboratories and end up more with the line. To be as close as possible to the consumer when it comes to the innovation process becomes more important than ever!
• Thirdly: Social media and, web-based capabilities are growing in prominence – the traditional advertising specialists may be on their way out! To build “one-to-one marketing” requires a new breed of leaders – not only technically competent, but with a full appreciation of the relevant consumers and the innovations that these appreciate! And, to re-conceptualise one’s value chain to gain more speed shall be increasingly critical!
• The key competitors for traditional consumer good firms, and other types of consumer-serving firms as well, might be such relatively new successful firms such as Apple, Facebook, Amazon, etc.
• And, finally, to implement fast changes requires new corporate thinking and development of new capabilities: Incrementation listening to the consumer – without an arrogant mind – is called for. An ability to rapidly modify production and distribution is essential. It is all about flexibility and speed. To possess a reasonable number of wholly-owned stores can help here – Apple and Nespresso are extremely good examples!
[su_pullquote]To implement fast changes requires new corporate thinking and development of new capabilities: Incrementation listening to the consumer – without an arrogant mind – is called for.[/su_pullquote]
So, what we are outlining offers direct inputs, even potential solutions to what might be some of the largest dilemmas facing not only today’s corporations but indeed many of the national economics of today: How to achieve both growth and profitability! The ability for a firm, and a society, to be entirely open-minded in identifying, indeed re/discovering, who the relevant customers are, coupled with entirely new ways to innovate and communicate, become key, although regrettably there are typically plenty of entrenched executives who might resist this. Perhaps this identification of who is progressive vs. who is “out” might constitute the largest challenge of them all!
The research and key arguments used for this article can be found in our new book From Great to Gone, Gower, London, 2014
About the Authors
Peter Lorange is the founder and President of the Lorange Institute of Business Zurich (since July 2009). He was President of IMD, Lausanne from July 1993 until April 2008, where he was the Nestlé Professor of Strategy and subsequently held the Kristian Gerhard Jebsen Chair of International Shipping. He serves on the board of directors of several corporations. Peter Lorange has written or edited 18 books and some 120 articles.
Jimmi Rembiszewski rose from sales trainee to become Group Marketing Manager of P&G. In 1988 Jimmi joined Jacobs Suchard as a member of the board for New Brands, Research and Media. From there he moved to the role of Business Development Director Worldwide, Confectionery Sector, with Philip Morris before joining British American Tobacco as Marketing Director and Regional Director Europe. In 1996 he became a board member of the new BAT and remained as Marketing Director for the group until his retirement at the end of 2009.