Wednesday, March 24, 2010

Don't follow me. I'm lost too!


The retail trade and FMCG makers in the Baltic have one indisputable success to their credit: they've created consumers loyal only to price. Although it seems obvious that it should be the quality, not the quantity of market share that dictates company policy, this unfortunately has not been the modus operandi of most companies here. In the bare-fisted slug-out fest that was competition 'till the bubble burst, managers only focused on market share as a measure of success. The market was growing anyway, profits were assured.

There's a funny bumper sticker that I see occasionally. It reads "Don't follow me. I'm lost too". Reactive marketing and price promotions "because they are doing it" is not really a sound marketing strategy, but "maybe they know something we don't"?. As a consumer I obviously benefit – why pay more if the company making the product is willing to sell it 3 times cheaper than I'm willing to pay for it?! The equally obvious downside, for the company (and eventually for me) is that their investment ability into new products, as well as maintaining the quality of existing products, is greatly reduced. It is a downward spiral that only greater emphasis on quality and long-term value propositions (whisper it: brand equity) can stop from ending in no products at all.

The legacy of continuous market share competitions is a cynical and price conscious consumer, that knows exactly where to get the cheapest thingamajig and whatchamacallit. The consequence of absolute price consciousness is a poor grasp of quality. Since the only argument has been price for so long, a quality proposition that costs (probably many times) more than the cheap artificially sweetened, water injected, chemically flavored indigestible thing requires more time and money to make, than a poor company wanting to make it has.

The power of retailers in this situation is particularly disheartening, as in their continuous struggle to provide their customers with more "value", they are in fact providing less and less of it by substituting real things for cheaper alternatives. The company wanting to make the real thing faces the unpalatable choice of either making it cheaper (read: worse) or not making it at all. The retailers argument is, that people are only interested in price. Of course they are, because that's the only thing they've been told to look for. Thus it is now a self-fulfilling prophecy. The only question remaining is, where's the money?

We all know where the money is, but this requires a proper strategy for companies, an understanding of real strengths, weaknesses and what the company is actually good at doing that people would be willing to pay reasonable money for. This requires hard work. That's the other thing that people, companies and government forgot how to do in the bubble years past.

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