Friday, June 29, 2007

Bumpy Roads are Better

Yesterday, I spent most of the day in a car driving to Chicago for my daughter’s wedding. Fortunately, the roads had been recently repaved, so the ride was nice and smooth. However, I started thinking about what would happen if the road had been really bumpy.

Let’s assume for a moment that we were driving a truck full of items and we had to take these items a long distance on a very bumpy road. Before leaving on the journey, we had loaded the truck in a certain way, with boxes of cereal on the bottom and boxes of basketballs on the top. Once we get on the bumpy road, we can feel the truck bouncing up and down and shaking the entire trip.

At the end of that long and bumpy journey, we open up the back of the truck—and to our horror—we see a jumbled up mess. Some of the boxes of basketballs have shifted to the bottom and some of the boxes of cereal had bounced to the top.

Then, we say to ourselves, “If only we had been able to drive on a smooth road. Then nothing would have changed—everything in the back of the truck would be exactly where we put it at the beginning of the journey.”

Often times, companies can hold an opinion similar to that truck driver. We long for a smooth ride for our journey into the future. We view stability in a marketplace as a good thing. Stability tends to be more predictable. It is easier to do strategic planning in a stable environment. We feel like we have greater control of what is going on.

In reality, however, a smooth and stable ride can be a business person’s worst enemy. Usually, the key objective of strategic planning is to find a way to improve one’s position in the marketplace. This typically requires finding ways to gain market share.

It is extremely difficult to change one’s position and gain share in a very stable environment. To quote our truck driver, on a smooth road everything is in the same place at the end of the journey as it was when we started. Nothing moves. In business, this implies that in a stable environment, it is very difficult to attain a better position, because everyone in the marketplace tends to stay in the same position—nobody moves.

Instead, it is the bumpy and unstable ride which provides the greater opportunities to shift one’s position. In our story, the bumpy ride allowed boxes of basketballs, which had been on the top of the heap, to fall to the bottom while some boxes of cereal were able to make their way to the top. The same is true in business. Instability and change in the marketplace make it easier to shift one’s position from the bottom of the heap to the top.

As business people, it may be in our best interest to steer our business to the bumpy roads

The principle here is that changing environments can work to our favor, it we manage it well. Unstable environments have many advantages.

First, in unstable environments, customers are more willing to reconsider their purchasing behavior. We all tend to be creatures of habit. If nothing has changed in the marketplace, then there is little reason to even consider changing one’s habits. People will continue behaving as in the past (without even thinking about it). We just sort of go into autopilot and don’t alter our behavioral course.

However, if there is a lot of change going on, consumers can get jarred out of their habits. In turbulent air, we turn off the autopilot and put our hands back on the steering wheel. We pay more attention to what is going on and may alter our behavioral choices.

A simple example can be seen in the housing market. With the slowdown in people changing their residence, there is less reason to be concerned about home-related purchases. With this type of this stability in living arrangements, consumers just sort of drift through life without paying much attention to their home environment. Instead, other, more pressing issues of the day fill our mind. As a result, sales at retailers selling things related to the home, like Home Depot and Lowes, suffer.

However, when people have a major change in their lifestyle by moving into a new home, they take the time to reassess what they own and what they need. New needs arise, and sales at places like Home Depot go up. The change in residence increased one’s awareness of home needs and increased purchasing in that area.

Grocery shopping can be very habitual. People tend to shop the same store at the same time each week. These habits will rarely change from week to week, especially if there is stability in the marketplace. It is only when our environment changes that we get jarred out of that habitual pattern.

Perhaps a Wal-Mart supercenter opens up in the neighborhood, offering a new alternative to the conventional supermarket. Perhaps we get a huge promotion which changes our financial position. Maybe we are entertaining the boss for dinner at our house tonight. Any of these changes could get us out of our weekly rut and cause us to change where we shop or what we buy for groceries.

Therefore, change and instability can be our friend, particularly if we do not like our current position. Change causes people to stop their sleepwalking through life and pay attention—to rethink their habits. This is when people will be most receptive to paying attention to your marketing message. This is when they are most likely to switch their loyalty from someone else to you.

A second benefit from change is that it provides an opportunity to redefine the marketplace in your favor. In the grocery world, choices were often ruled by price. If you had the lowest prices, you tended to win. However, we are now entering a changing environment. There are scares of tainted food coming out of China (if it can kill our prized pets, what might it eventually do to us?). People are starting to worry more about the impact companies have on the environment. As baby boomers age, they are worrying more about health concerns. All of these changes can provide an opportunity to redefine how people think about food. Rather than stressing price, one can change the value priority to include more concern over health and safety.

Firms like Whole Foods are finding many converts who are changing their values regarding food and are willing to pay a little bit more to people who are selling food more in tune with these new values.

The benefit here is that if you are not the best at providing what consumers are looking for today, change may provide the opportunity to convince people to reconsider their values so that they prize more of what you are the best at providing.

Therefore, we should embrace change in the marketplace. It can be our friend in terms of increasing demand, increasing receptivity to our marketing, increasing shifting of share to our brand, and getting people to change their value priorities to more closely match our strengths.

If the market is stable, it can be in our best interest to take the initiative to create the instability on our own. Maybe we need to do something shocking, to wake people out of their autopilot and rethink their habits.

There’s a reason why the word “new” is so powerful. It makes what we currently do seem “old.” If we say we are “new”, it is more likely to break a habit than if we say we are “just like before.” And if we aren’t new, then maybe we can help convince people that their situation has changed, which should cause them to reassess their behavior—hopefully in your direction.

Although stability may appear to be a nice thing, it tends to freeze a marketplace and inhibit change. Strategy is about changing one’s situation for the better. That is easier when a market is in turmoil. Therefore, if there is change in the marketplace, use it to your advantage. Anticipate which direction the change will take the marketplace and then position yourself to be best suited for the change. If change is not occurring, try to create change on your own.

Bumpy rides can often lead to better end points, where your boxes shift to the top of the heap.

If you are a market leader, you may not like change, because you may have nowhere to go but down if things change. However, given enough time, change will occur, whether you like it or not. So you may as well prepare for it.

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