Beyond the Buzz with David Stanley Marketing and Management Essentials To Grow Your Business

The decades long decline for the U.S. auto industry culminated last year with a government “take over” of two of the three domestic auto companies. The Wall Street Journal recently featured an article on Sergio Marchionne, CEO of Chrysler Group LLC. Since he is also the CEO of Italy’s Fiat SpA, he is technically not an auto industry “outsider,” but he is not a part of the culture that brought Detroit down. I found two key lessons from his observations and actions that can be applied to any business.

Lesson One: Don’t resort to discounting when sales are tough

Many businesses, especially the auto industry, tends to react to a decline in sales or market share by slashing prices. Here are a few insights from the article:

• In Detroit, “there’s almost a fanatical, maniacal interest [market] share.”
• “Unprofitable volume is not volume I want. We have a very good track record for how to destroy an industry – run the [plants] just for the hell of volume, and you’re finished.”
• He was frustrated by the use of hefty rebates and other incentives to maintain sales which is an industry-wide problem.

If discounting is the only thing you can do to try and create sales, you’ve got a very weak value proposition. Ford has created a more compelling car lineup recently and has not resorted to the level of discounting that has been a core part of the auto industry playbook in recent years. To show that this works in other industries as well, consider that Apple has been creating high demand products that aren’t cheap and has not needed discounts to sell them.

Lesson Two: Culture is important.

The culture in Detroit has been insular. Marchionne has tried to shake up Chrysler’s “plodding corporate culture” by ousting several veteran industry executives and flattening the company’s bureaucracy.

Have you ever heard the saying, “you can’t read the label when you’re inside the bottle?” Sometimes a company or  an industry culture gets so insulated in its thinking and practices that it takes a real shakeup to get things moving in the right direction. I don’t know why, but companies have a tendency over time to create bureaucracies, which leads to hierarchies and inefficiencies. This does not create a competitive advantage; it diminishes it.

Ironically (or maybe not), Ford brought in an auto industry outsider as CEO in 2006. They were the only U.S. automaker that didn’t file for bankruptcy protection or accept government bailout funds. Ford has also been gaining market share and profitability. They are building autos that people want.

What are the results of Marchionne’s actions? It’s too early to tell, but Ralph Giles head of the Dodge brand, says that Marchionne “has brought a refreshing energy” to the Chrysler workforce. Mr. Giles also had this to say: “We were starting to look at the product as a commodity, which is disgusting.” He also said that he has “resumes spilling off his desk compared with a year ago when he couldn’t find someone to hire to sketch cars.”

There are a lot challenging variables at play here that will determine whether or not Chrysler succeeds. Regardless, these two lesson we’ve covered today are a good first step, and are lessons that can be applied to every business.

So, how will you apply these two lessons to your business?

Could your business go from fending off a robbery attempt by Bonnie and Clyde to out performing big box competition? Meet Dougherty’s Pharmacy, an 80-year old retail pharmacy that has not just survived, but continues to thrive utilizing old-fashioned service and modern-technology in the face of fierce, large chain store competition.

Check out these numbers:

• Last year, sales per square foot were $2,000 – double those reported for CVS or Walgreens
• This year’s sales were even better – $28 million and above industry profit
• Customers drive from over 100 miles away to do business with them

Reading about Dougherty’s in a recent Dallas Morning News article, I came away with four fundamentals you can use to grow your business.

1. Offer products and services others don’t.

Dougherty’s offers product depth and services that aren’t found at the majority of big-box pharmacies (including Walmart).

• Compound medicines which provide made-to-order medicines
• Medical equipment
• An entire wall of Jobst support hosiery
• Certified nutritionist
• Home delivery

2. Use technology to create efficiencies that improve the customer experience.

“A $200,000 robot rapidly counts, fills and labels the 200 best-selling drugs with an accuracy rate of 99.99 percent.” (Accuracy is critical in the pharmaceutical business.) Dougherty’s has invested $1 million in technology since 2004. Your business probably doesn’t need an expensive robot, but you can still look into technologies that can improve your efficiencies and service quality. Dougherty’s uses a video screen to post customer names as prescriptions are filled.

3. Decide what not to do.

Being all things to all people is not a sound business strategy. Dougherty’s doesn’t sell groceries or flip-flops. The product/service offerings are focused around health and wellness along with their personal approach to business.

4. Understand that the personal touch still wins.

Changing technology doesn’t require an abandonment of old-fashioned values. The continuing rise in social media shows that people want to connect with each other. Friendly, expert personal service remains a key differentiator for growing your business.

Bonnie and Clyde may not be threatening your business, but small and large competitors are. Take the time to consider these four fundamentals. What can you learn from Dougherty’s to grow your business?

Consumer buying habits have changed. Nobody wants to pay full price anymore.

I heard this statement by a commentator on a CNBC yesterday. Then I get a marketing research newsletter by email summarizing a new study, entitled “Marketing to the Post-Recession Consumers,” by Decitica. The article states that the study “addresses the lasting effects of the recession in the way American consumers have internalized the recession experience. It’s particularly relevant in developing ‘positioning’ and marketing/merchandising/advertising strategies.” Sounds profound.  Here are some of the findings:

• The effects of the Great Recession on consumer behavior are so profound that many of the assumptions underpinning consumer segmentation are no longer valid; and
• Marketing strategies that do not fully recognize the diversity of consumers’ recession experiences won’t have the desired potency in the post-recession world.
• Many have accepted this radical change as the “new normal,” and not just a cyclical phenomenon.
• The recession has caused a profound, deep-rooted change in consumers’ spending habits in favor a more restrained approach.

There are four distinct consumer segments emerging from the recession according to the study, identified as:

• Steadfast Frugalists,
• Involuntary Penny-Pinchers,
• Pragmatic Spenders and
• Apathetic Materialists.

Price has become the dominant consideration in the purchase of all kinds of products, concludes the study. Of considerable significance is the fact that half of Pragmatic Spenders are looking at price before other features and one-third say that brand name products are not worth the extra price, heralding what will likely be a long uphill struggle by marketers to shift the focus away from price, says the report.

Don’t Bet The Farm On The Reported Consumer Behavior Change

There have been similar studies to this one reported recently. Taken at face value, it looks like its time for a monumental shift in your marketing approach. Be careful – take a moment to get some perspective before you rush to change your marketing plan based on this type of research.

Depending on research that asks people what they think they will do in the future is very dangerous to your brand. You cannot predict what people are going to do based on what they say. You can only measure what they have done. People will give you what they believe is an honest answer about what they think they will do, but they really don’t know until they are faced with the decision. It’s just human nature.

Study What People Actually Do

I’ve been fascinated by the studies which have found that people who change their lifestyle after a major health event like a heart attack often do change their behavior for a period of time, but the majority typically go back to their old behaviors as they move farther away from the crisis event.

There is no question that the folks that have been hit hard by the recession have made changes to their buying behavior. But is this really a long-term shift?

If you have ever spent time with people who went through the Great Depression, you’ve seen a frugality that has carried through for their entire lives. While the current recession has been hard on many people, especially the 10% that are currently unemployed, it’s not any where close to the experience of the Depression of the 1930’s. When the economy recovers, can we really be sure that consumer behaviors have permanently changed? Will price truly be the deciding factor?

Be Compelling

Going back to the quote we started with that people no longer want to pay full price. Have they ever wanted to pay full price? No! It’s not about price; it’s about perceived value. In the absence of a compelling reason to buy, price will win out. It’s called commoditization. All things being equal, price is the default.

Apple recently reported an increase of 47% in quarterly profits. Why? People are buying iPhones, iPods, and Macs. Apple doesn’t advertise discounts to sell its products. They create compelling product offerings.

Radio Shack, once thought to be on the brink of irrelevance, is gaining traction in the highly competitive consumer electronics industry by selling more expensive, and more lucrative, wireless products from a broad range of suppliers.

Casual dining chains have reportedly seen a significant decrease in sales and traffic, but not Chipotle. There are only three major items on Chipotle’s menu: burritos, tacos, and salads. In a U.S. News & World report article, Chipotle’s Secret Salsa, Founder and CEO Steve Ells sums up its business model in a single sentence: “Focus on just a few things, and do them better than anybody else.”

It’s too soon to know if consumer behavior is really shifting for the long-term. But it’s not too soon to improve how you do business. Lowering prices and cutting expenses is the easy thing to do. The harder work is creating a compelling product or service offering. Are you willing to do the hard work?