Fashion Industry Discovers the Waisted Rectangle©, Our View of the Consumer Goods Market

FROM OUR PARTNERS AT SCHMIDPREISLER INTERNATIONAL STRATEGY CONSULTANTS:

It has long been controversial, if the questions “What do I need to satisfy my needs?” and “What are my wants?” are basically the critical purchasing criteria or whether the purchasing power of the people is decisive when it comes to purchasing decisions. Just as controversial was our thesis that independent from purchasing power orientation on the price plays the decisive role when it comes to satisfaction of needs, while satisfaction of wants is oriented on immaterial values; for instance the prestige value of a brand. 

Deduced from Maslow’s pyramid of needs the market was divided in a top, center and a wide base. The center of the market was viewed as especially attractive, because the common attitude was one could assert oneself with an average product quality at slightly higher prices and margins than in the rough climate of the mass market and it would take less time and effort then it would take in the noble luxury segment. 

The “Center of the Market” was a hot topic of discussion for many years. There were vehement advocates of the center and there were those who left it carefully and without much ado. The center of the market went through emotional roller coaster rides. First it was “out” then it was “in” again. For us it was always a phantom. 

In the 80’s of the past century, after the change of values became a widespread movement and the consumption society prepared for the pursuit of new targets which were not supposed to be shaped by a never ending more on consumption anymore, we realized that the market needs a new view. This new view should take into account the changing habits the life of people. This was the basis for our Waisted Rectangle©. A view of the market, divided in four segments grasping everything that serves the satisfaction of needs and wants. And we said that when it comes to the satisfaction of needs, the price plays a decisive role. For the satisfaction of needs, the immaterial value assigned to these products is crucial. 

We named these four segments: Luxury, Premium, PremiumEconomy and Economy. The center ceased to exist for us. Since the first public introduction till today, almost 20 years have passed. For the implementation of a new view of the market this is a relatively short period of time. We are proud to say that our view of the market serves more and more often as basis for businesses for their positioning on the market. Whole industries have adopted the Waisted Rectangle©. The automotive industry which for instance has practically given up the whole middle class and now instead offers Luxury limousines, Premium cars often also called business class aside from its bread and butter models develops and sells upgraded PremiumEconomy models. 

2007 was also the year where airlines started to exchange their three-class-structure through a four-segment-structure based on our Waisted Rectangle©. And we just recently read that the fashion industry realized that the fashion market also functions according to the view of the Waisted Rectangle©. 

Fashion that is supposed to satisfy needs and fashion that is supposed to fulfill wants. There is Economy and PremiumEconomy on one side and Luxury and Premium on the other side. The success business enterprises such as H&M, Zara and C&A have achieved in the past few years has certainly contributed to the fashion industry giving up the long propagandized three-class-theory, where the center of the market was the comfortable segment for people who were not able to really decide what they actually wanted to be.

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Bear Stearns Bailout? Would Its Shareholders Agree?

Question: Did the fed orchestrate a bailout of Bear Stearns or provide a huge subsidy to J. P. Morgan, Chase?

Once again, the current administration, the world's cheerleader for private enterprise has provided a huge taxpayer subsidy to a giant, private bank. There's enough public information out there to raise some serious questions.

Two days before the announcement of the proposed deal, the Fed offered to extend enough credit to Bear Steans to give it one month to stabilize its situation.

Two days before the deal was announced Bear Stearns stock was trading in the vicinity of $30 per share. This was the last publicly traded price, arguably the best indicator of value.

The proposed deal includes massive Fed guaranties to protect the purchaser against unforeseen liabilities.

To the extent that the value of the enterprise is in excess of the $2 per share price, the Fed has orchestrated a transfer of wealth from the Bear Stearns shareholders to the shareholders of JP Morgan, Chase. 

By offering to swap treasury securities for the lower rated debt that undermined Bear and is threatening other Wall Street banks, is the Fed guaranteeing an indeterminate amount of liabilities? How much is the Fed worth? What is the extent of this exposure in the financial markets?

What is the public benefit from the Fed's actions? Phrases like "insuring the stability and orderly functioning of the financial markets" need to be explained. 

Has our government considered guaranteeing the mortgage exposure of homeowners with sub-prime loans? Why not? Are homeowners more culpable for their excess borrowing than the financial wizards who constructed the sub-prime securities and derivatives, or than those who traded in these instruments?

Please send me your views.

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You’ve Invested Heavily in Building Your Brand: In Bad Times, Your Brand Can Protect You

Reading daily about the economic downturn? Sales and profits figures slashed? Government bailouts, cutbacks, layoffs and facilities closings?  Well, the best strategy may not be to cut and run.

Following the herd can be dangerous to your brand, and to your business.

While you were growing your business, you invested heavily in building your brand. Beginning by defining your business’ core values and devising your strategy for communicating these values to your customers through every aspect of your business, you offered your consumer a clear promise of the products, services, experience that would bear your label. If you were successful in delivering on your promise, the consumer rewarded you with purchases and loyalty.

In bad economic times, your brand, your most precious, off-balance sheet asset, might very well be your best protection. So, before you rush in and indiscriminately cut costs, first carefully examine the health of what you’ve created. In those instances where the euphoria of seemingly endless good times induce you to spend opportunistically, diverging from or ignoring your original branding strategy, you might indeed find costs worth cutting, or business lines that might best be divested. But, where your investments yielded a strong brand foundation, you should certainly move to protect your brand and if you have the means to invest, enhance it. Consider that there may be no more advantageous moment to build your brand than the moment that your competitors are weakening theirs.

Reacting to the news reported in the general media, may also mean that your timing is off. Often, by the time the economic data is disseminated and reported by the press, the economic problems may be well under way and the moment to take aggressive preventative measures may have passed. Limited access to timely financial data and reliance on the pundits means that many mid market companies are always relegated to playing catch up ball.

Across the board cut backs in business spending and investment may in fact exacerbate the severity of the decline. Contractions in business activity are opportune moments to re-examine the basic principles on which the business was built, to critically evaluate the business’ relationship with its core customer, and to take action to strengthen those relationships.

Brand driven businesses have unique relationships with their customers; the customer relationship is a deal between the brand and the customer, in which the brand makes certain promises and the customer remains loyal so long as those commitments are met. The core of the brand-customer relationship is trust.

While exercising caution in anticipation of a downturn in business is surely warranted, one of the reasons why this strategy may not be best for smaller or medium size businesses is that by the time we acknowledge the problem, it is well under way. Limited access to timely financial data and reliance on the pundits means that many mid market companies are always relegated to playing catch up ball.

Particularly after long periods of economic growth and business expansion, a business would do well to ask: Have we remained true to our core principles? Have we clearly articulated to our customers what we stand for, and, have we consistently delivered on our promise?

A variety of tactics are available to businesses of all sizes to develop the data necessary to answer these questions. Larger and flusher businesses may commission professional, quantitative and qualitative market studies to ask their customers “how are we doing”. Through questionnaires and focus groups, the marketing professionals can develop a fairly accurate answer to this question.

But as New York’s Mayor, Ed Koch who was famous for walking down the streets of his city and asking his constituents, “How am I doing” taught us, asking customers directly often yields excellent results. Businesses too can develop fairly reliable information using anecdotal techniques. Conversations with customers both before and after a sale is made, with suppliers and others integral to the success of the business can yield significant and reliable information. In fact, a personal interaction with your customer not only gets you access to information, but also demonstrates to your customer that you care, and that’s always good.

Once this information is collected, management should implement a program of discussions, with appropriate executives, to digest the information and determine where the business may have strayed from its core message in ways that might have been hidden or overlooked during the expansive years.

With the business leadership properly focused on the brand message, the ways in which it was successfully delivered and the areas in which it might have been obscured or worse, overlooked in favor of a more opportunistic tactic, management is equipped to develop corrective measures.

Quality control, merchandising, design, selling strategies and marketing all need to be critically examined.  And where improvements can be made, they should be implemented. But the common theme in all of this is a laser like focus on the customer: What have we promised, what may he expect, how can we better deliver, how can we make him aware of our commitment and earn or re-earn his trust. Truly, in bad times as well as good, the customer is key.

If new products or service lines were added that are not in keeping with the brand promise, these should be cut or scaled back. Even when the short-term effect of these cutbacks might reduce near term revenues, the moderate to long-term benefits or enhancing focus, investing in the further development of core businesses will outweigh the short term pain. In some instances, where these diversions from the business’ core message have been well enough developed to be of interest to industry partners, a sale or divesture of these ancillary businesses might make some sense.

It is very tempting to cut prices, staff, and facilities to protect the business. But more often than not, these cuts will reduce the business’ flexibility to respond to market demands. Ironically, this loss of flexibility to innovate to meet new market conditions will often handcuff the business and commit it to stay with the very strategies that led to its problems. And while price cutting alone might reduce inventory and increase or maintain cash flow, it will also reduce margins and drag an up market business into the domain of its lower priced competitors, frequently increasing the downward business spiral. One need only look at the pernicious effects of end-of-year sales in the department and mass retailer sector to appreciate this phenomenon.

In an ideal world, a brand driven business would keep to its message, secure its market niche and continuously enhance its bond with its customers. But this is not usually the case. Periods of rapid growth and expansion often present tempting “opportunities” to quickly enter new markets, increase product categories and expand the business. When the economy or business shows signs of faltering, the smarter brand driven business is one which appreciates the value of its brand, understands how it is a strong, yet fragile, engine for stability and profitability, and takes measures to protect it.

 

 

 

 

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U.S. Universities Rush to Set Up Outposts Abroad: Are We Leaving Our Students Behind?

In February of this year, The New York Times ran the first of a series of articles, which will explore the expansion of US Universities abroad. In describing the global expansion plans of New York University and other prestigious U.S. institutions of higher learning, the article observes, “The American system of higher education, long the envy of the world, is becoming and important export as more universities take their programs overseas.” Is this good US trade policy?

When reading this long and detailed article, I was surprised that in all the discussion of the pros and cons supporting and detracting this emerging education initiative, there is not one mention of the interests of current or future generations of US students. Equally sad, none of the educators quoted in the article seems to consider the impact that this policy of educational globalization will have on American citizens workers.

Instead, the discussion among the education establishment seems more narrowly focused on the prestige and reach of American universities, on becoming better known, better funded, gaining more powerful alumni, and providing more opportunities for faculty to teach abroad. It’s as though the institutions, many of which receive vast amounts of public funding and support, exist only to enhance themselves.  Have our students been lost in the equation?

One has only to tune in to any of the political debates this year to hear or read about the outflow of US jobs to foreign outposts. Traditionally, the enlightened response to many of these concerns has been that we need to do a better job of educating our workforce, to prepare our people for more highly skilled, and typically better paying, careers.  The trade policy notion has been that the loss of low paying jobs is not in and of itself a bad thing, if it is offset by the creation of better paying jobs and the creation of a work force which can meet these needs.

But now our educators, in the rush to join the Globalization juggernaut, would like to export our educational know-how, and disperse, world-wide, the knowledge, skills and training that have long been seen as the foundation upon which to build a better American workplace and to elevate the American standard of living.

While enriching the educational institutions with large contributions, new campuses and global centers, do we risk cheapening the learning and degrees that up until now have helped generations of American students compete in the world economy? Moreover, are we transferring valuable educational know-how without recognizing its economic worth?

Perhaps it’s time to take a closer look at our nation’s education policy, to understand its relationship to our nation’s ability to afford good lives to our people and continue to compete in the global market place. We need to give this national resource the respect it deserves and treat it as a precious resource.

What do you think?

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