Articles

Living In The Demand Driven World!

I love a World War 2 movie as much as the next guy. Escapism and entertainment are an important part of the psychological repair kit that helps us cope with life in the 21st century. But I don’t want to live in the World War 2 era. So why is so much of our current day business thinking anchored in a context that originated in the years immediately following World War 2?

Consider it for a moment.

In the era immediately after World War 2 we saw things as infinite. We hadn’t even been to the moon. The universe was vast and limitless. Commodities could be dug up out of the ground and seemed to be inexhaustible. We were pre-occupied with re-populating, re-building and re-stocking a planet we had all but bombed into extinction.

This is the era that spawned supply driven market economics and profit through volume. We still teach today the theory of reducing cost to consume down to its cheapest level in order to drive aggregate consumption up in a never ending yield curve to produce product generated profit gain.

All made sense when everything was infinite and expanding.

But the 21st century has delivered us a very different context.

Most western markets are mature. Demand growth has slowed everywhere outside the BRIC (Brazil / Russia / India / China) economies. We over-produce in almost every category. Replication is rapid and cheap. Consumers have grown tired of cheap price as a stimulus. And we have embraced the concept that the world’s resources are not only finite but have been under-valued and over-exploited for far too long.

Welcome to the demand driven market economics of the 21st century.

In this new era a growing band of retail leaders talk about ‘sweet spot’ pricing strategy – not cheapest price. We embrace differentiation not sameness. We talk about lifetime customer yield not transactional product yield. We study magnetic consumption (Pull) not supply force (Push). We find a unique way of attracting and maintaining customer relationships that are capable of sustaining ever increasing lifetime profit contribution and then align the retail business model back from that space.

Don’t get me wrong. Profit through volume still works. But modern history suggests it increasingly works for one player in a market who dominates that space in an all-pervasive manner. This forces everyone else to embrace some form of magnetic appeal that supports price elasticity – or they die.

History is a great thing to learn from not to live in. Success in the modern era for most retailers will come from understanding the rules of demand driven economics and embracing them throughout their business before their supply of customers dries up.