The bright students and I discussed people's rituals and how savvy firms today will figure out ways to market products to consumers - products that will enable end-users to continue to behave in manners that are familiar to them, but in more cost-friendly options. Examples include home hair color kits, DVD movie nights and pot-luck dinners. In each option, people still get to participate in events and behaviors that matter to them most - beauty, entertainment and connection.
In recent months, manufacturers are not the only ones targeting the individuals that, ultimately, are responsible for making nervous shareholders happy. Savvy retailers, anticipating conservative shopping patterns, currently offer layaway. The rules of layaway are basic: find an item you love, take it to the service desk, pay what you can for it and once you have paid it in full, it is yours to keep - no credit cards needed. Think of it as a savings account specific for stuff. The question is, with many retailers moving to a Scan Based Trading (consignment) model, during layaway, who really owns the inventory? This must make auditors cringe more than the account receivables on expired gift cards or travel sites that enable transactions, but don't really provide independent services.
Back in the early 90's, while earning my B.A. at DePaul and working full time managing Claire's Stores in Chicago, times were tough. Not as tough and uncertain as today, but, still tough. Every morning, when opening the store and getting it ready for the customers, our district manager Andrea Pape would make the morning chain call. Andrea would call one store manager, provide a list of daily reminders on what will make a difference at the cash register, and that manager would then need to relay the information to the next store manager in the district.
Some of Andrea's reminders included:
- Is the store immaculate? Are the lights working?
- Is the store staged for sales? Are all the fixtures, shelves and pegs filled with product, with nothing in the stock room?
- Is the staff wearing its best smile, greeting and helping every customer that walks through the door?
- No one is allowed behind the register counter unless ringing up sales. All sales require a thank you.
- Are toys refreshed with new batteries and demonstrated to children and adults?
- Is the cash wrap filled with impulse items to drive a bigger transaction?
- Store gate does not go down until the very last customer has left the premises.
Of course, the early 90's hadn't yet experienced the inundation of miles, points and other loyalty programs that seduce good citizens into irrational decisions.
Two years ago, due to the business needs of various job positions and other fantastic opportunities, I earned elite status with my airline. And for the next twenty-four months, I perpetuated the status by using a credit card to purchase even more tickets, justifying the trips with accrued credit card points and more miles, all in an effort to stand in a shorter security line at the airport. Earlier this year, it finally hit me: I was flying more just to fly more. And my airline, as many others, no longer has the expedited security line at all times and locations. Perhaps too cost prohibitive to have two agents checking tickets? Perhaps a trade-off to reverse the decision to stop granting a minimum 500 miles per trip (vs. actual miles traveled)? Regardless, the points and miles no longer seem all that seductive, and the recent investment in a house over-rode the need to book another overseas flight.
And speaking of transportation, currently, at this moment, as gas prices continue to fall and no one is reporting on why, six months ago, they rose to nearly triple the price they are at today, people have stopped flying, reduced driving and re-budget every fiscal decision, large and small. The typically cyclical economy patiently waits for the Next Big Thing. Perhaps the new president will encourage confidence - not a spending spike - but statistically significant economic investment - in manufacturing, in services and, most importantly, in entrepreneurial follow-through. In the holy trinity of decision rights, performance measures and rewards, millionaire CEO bailout sends a message of irreversible and irresponsible planning. When Cortez sank his ships, he made it clear that going back was not an option.
At times likes this, pure fiscal Darwinism has to tango with social responsibility. Profit-optimizing capitalists need to court the giving spirits and together generate a new rent-collecting business model, one that will reposition and reconfirm the country as the innovation champion. As my Strategy Professor Matteson once said, "You have to rise above the clutter."
So now the question is, which retailers and manufacturers have the common sense to keep the entire value chain happy? The answer lies in three additional questions:
- Which rituals remain holy?
- What behaviors no longer matter?
- What new needs are about to surface? (Think Wayne Gretzky's skating to where the puck is heading vs. where it already was.)
4 comments:
This all causes me to think about what is really best for the country. Is it the success of corporations or the success of individuals?
Corporations rely on individuals spending their money to be successful. Individuals rely on saving or investing money (spending less) to be successful. Which end leads to a better society?
I believe we are at a crossroads, where business interests are at odds with the interests of the greater good of our society. The successful business is one where the employee-emplorer relationship changes from one of employee exploitation to one of mutual benefit.
In a time where corporate profits have grown (until recently) while real wages have declined, it is impossible not to see the inbalance that is fueling a public backlash against business.
Corporate America needs to realize that the financial health of its employees is important to their own bottom line. Wealthy employees are customers, poorer employees are an expense only. The social component of business is broken and that is the foundation of a healthy nation and a healthy business environment.
In my work on Wall Street, one of the things I had to do was figure out when staffing and payroll processing companies would turn corners - in both positive and negative directions. I looked at hundreds of economic factors in order to find correlations. It turns out that the duration of unemployment (for those who are unemployed) is the best predictor of stock direction. This statistic is readily available on the website of the U.S. Department of Labor.
When the average period of unemployment expands, performance and stock price sink. When the average period of unemployment contracts, across the U.S., corporate performance and stock price are poised to rise within a couple of months. Tpyically, the overall economy slumps and recovers at about the same time as staffing and payroll processing companies. (In analyst-speak, my stocks were "cyclicals.")
Of course, every person who enters or leaves the ranks of the employed does so for a myriad of economic and personal reasons. Psychology is a factor. But the business cycle itself has no feelings.
So my general belief is that we as a nation will pull ourselves out of this slump just as we always do. I'm not sure how long it will take, but the economy moves in cycles, and it won't always stay down. The resources of the U.S. have not contracted materially and, if we include the fruits of innovation, have been expanding rapidly over the past several decades. Meanwhile, trade with other countries has liberalized. Even if the new president tightens trade with our NAFTA allies, new markets in liberalizing governments and expansion of our existing trading partners' economies (including India and China) should make up most or all of the difference. Basic economic theory, then, says that once we are through the current liquidity crisis, our economy should continue its long-term trajectory of expansion.
Like Alex, I am a big proponent of active civic engagement. But that isn't what will pull us out of the current slump. The invisible hand of capitalism will, as it always has. Our role as corporate managers is to keep up our spirits and continue to run our companies as best we can. If we can keep our employees motivated and productive - which I grant is hard, when the headline news is often a challenge to morale - the rest will take care of itself.
In terms of business ethics, I suppose what I am advocating is that we project the sense of purpose and commitment and steadiness that we would like to see in our colleagues and employees. It may not be a radical suggestion, but it can be awfully hard to effectuate. After all, we are affected by the news too.
When picking which stocks would perform well over long periods of time, my predilection was always to look first, second, and third at the management team. Did they have a long-term plan? Did they stick to the plan? Did they focus first on operations, with little thought to managing the day-to-day fluctuations of stock price? Did they keep a long-term view of where their companies were headed, and not make rash decisions or react too quickly to news, good or bad? Did managers in these companies hold their jobs for long periods of time? Were they decent people?
In retrospect, I know for certain that these were the right questions, and while my job wasn't easy, it wasn't all that difficult to separate the truly extraordinary staffing and payroll processing firms from the rest of the crowd.
These corporate leaders are now my models for how to conduct myself in my role - as a corporate leader.
Alex,
Very interesting post. One problem with lay-away at this point is that we are in a deflationary environment. There is a self-fulfilling expectation that prices will drop in the future. Plus, what will happen if the customer can not make all the payments? Will the item be re-stocked and all past payments refunded?
Also, we need to see that the primary reason for this economic FUBAR is that the payments to maintain consumer debt load outpaced income (with a hefty push from food and fuel costs), unless we see real income gains across a wide spectrum of the population, there is really no way out--and that means inflation. Perhaps the erosion of Union power over the last 30 years has unbalanced the power relations between owners and workers. There must be some way to restore the balance, if not through unions then through some kind of social-security type programs and redistributionist tax policies.
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