pretty good chance a bullet is headed your way.
I have long been fascinated by management’s capacity to get stuck, the many ways executives craft a narrative in a vain attempt to avoid change, the stories they buy into as they hope to keep above the fray. Far too often, the power of denial seems endemic to individuals and organizations alike. Believe me, I’ve been part of such teams myself.
Go back to the ’80s and ’90s and recall how a slew of successful retailers mostly did nothing while The Home Depot, Best Buy, and a host of innovative discount mass merchandisers and category killers moved across the country, opening new stores and evolving their concepts to completely redefine industry segments. Somehow it took many years for the old regimes to realize what was going on and how much market share was being shed. For many, any acceptance and action came far too late (RIP Caldor, Montgomery Ward, among many others).
Witness how the digital delivery of books, music, and other forms of entertainment came into prominence while Blockbuster, Borders, and Barnes & Noble spent years doing nothing of any consequence. Two of them are now gone and one is holding on for dear life.
Similarly, Starbucks’s revolution of the coffee business hardly occurred overnight. But if you were a brand manager at Folgers or Maxwell House, you were apparently caught unaware.
Consider how consumer behavior has been shifting strongly toward online shopping and the utilization of shopping data through digital channels for well over a decade. Yet many companies are seemingly just now waking up to this profound change.
Lastly, examine how the elite players of the luxury industry have largely resisted embracing e-commerce—and most things digital—believing that somehow they were immune to the inexorable forces of consumer desires and preferences. Yet while they sat around and mostly watched, Neiman Marcus, my former employer, grew their online sales to more than 30 percent of their total business.
More often than we care to admit, the bullet’s been fired, it just hasn’t hit us yet.
The good news is that while the pace of change is increasing in retail, we have a lot more time to react than we do in a gunfight.
The bad news is that the impact can be just as deadly if we are not prepared and we do not act.
The harsh reality is that the time we have to respond is dwindling virtually every day.
When the Shift Hits the Fan
Think for a moment about all the radical shifts we are experiencing.
The shift from largely siloed experiences to those that are cross-channel and demand well-harmonized integration.
The shift from going online to living online.
The shift from traditional media consumption to a mostly digital-first model.
The shift from the best location being a well situated and designed brick-and-mortar store to it being wherever our customer happens to be with their smartphone.
The shift from being weapons of mass consumption and disposable fashion to more conscious consumerism.
The shift from highly intentional shopping to more spontaneous and impulsive buying.
The shift from isolated customer journeys to those that are deeply connected.
The shift from brands being in control to empowered consumers who are increasingly dictating their requirements.
The shift from merchandising strategies of piling it high and watching it fly to the endless aisle and more intelligent curation.
The shift from one-size-fits-all, batch, blast, and hope marketing to highly personalized interactions and precisely targeted offerings.
The shift from marketers’ push to consumers’ pull.
The shift from wanting ever more stuff to desiring memorable experiences.
The shift from getting by with merely good enough to the need to become truly remarkable.
And on and on.
Confronted with these profound shifts, the tendency of many organizations is to go on the defensive. Overwhelmed by the shifting tides—and afraid to take risks in a fast-moving and highly uncertain environment—they circle the wagons to fight the changes, defend the status quo, or develop plans to merely soften the blow.
But survival is not enough.
CHAPTER 2
The End of Scarcity
“To my mind the old masters are not art; their value is in their scarcity.”
—THOMAS A. EDISON
Whether you are an economist or just applying simple common sense, you know that supply and demand largely determines how markets operate and which companies ultimately generate customer and shareholder value. If an item is of high customer value but is difficult to get, prices go up—and typically so do profit margins. Conversely, even when a good or service is highly desired, if it’s too readily available there may be little or no opportunity for a solid economic return.
At the intersection of customer wants and needs and the ability to meet them in unique and highly relevant ways lies opportunity. The first time we encounter a newly launched product or try a novel experience that moves us, it may be fascinating or even rather memorable. Yet once something becomes ubiquitous it tends to become uninteresting. What’s abundant is no longer special. But where strong consumer desire meets scarcity we find potential: the potential to win—and keep—customers, to drive profitability, to be remarkable.
Much of the luxury fashion industry takes advantage of this phenomenon. The most in-demand new item from an iconic fashion house retains its elevated image largely based on scarcity, much of it quite deliberate. Part of the intentional scarcity is the sky-high price point, which limits the number of people who can afford it. The other component is very narrow distribution, where only a small and select number of retailers carry the items.
The Hermès Birkin bag is a case in point. Since its introduction in 1984, Birkin bags, which start at over $10,000 (and can go much higher based upon materials used and degree of customization), have grown to be among the most sought-after fashion items globally, often commanding high markups on the resale market. Hermès reinforces the bag’s exclusivity through artificial scarcity, limiting production so that there is a waiting list and restricting sale to only a handful of stores. If Hermès were to decide to dramatically lower the price and greatly expand distribution, the remarkability of the brand would be undermined considerably.
Although few brands are as powerful and iconic as the most rarefied luxury companies, historically what we might call “managed scarcity” has been a component of many retail brands’ core strategy. Manufacturers generally chose the retailers they allowed to carry their products, seeking to balance consumer reach against over-saturation of distribution that would dilute their brand image and put too many of their retailers into head-to-head competition with each other. Another strategy employed by many premium brands (Sony, Bose, et al.) involves strictly enforcing the sale of their product at their manufacturer’s suggested retail price (or MSRP). While the price might have been suggested, it was well understood that retailers that broke from this pricing discipline might well forfeit the brand.
Retailers
