Over the last several months, we've all heard the comment that "things will never be the same". Given the severity of the financial crisis and the erosion of wealth in this country and around the world, it's not surprising that many of us have made this comment and believe it. But what has really changed? And how will these changes affect your business?
I've been asking this question a lot and the answers are unclear. On the one hand, a number of people predict a long extended period of economic malaise as the systemic and global nature of the recession will require time to recover. On the other, some believe that the massive amount of stimulus and the likelihood of a simultaneous global recovery will accelerate the turnaround generating momentum as jobs and spending return much more quickly. While I'm certainly an optimist and the worst is most likely behind us, the conventional wisdom suggests the recovery is more likely to be slower and take longer than most of us are prepared for.
So, what does this mean? During this past week, I asked this question of two experienced leaders and each arrived at the same answer. In one, I spoke with a CFO of a previously high-flying consumer products company who now finds himself in a struggling business with limited access to bank financing. In the other, a leading consultant described the competitive pressures in the market and the inability to control pricing. As the CFO described, "We thought we would benefit from the consumer trading down, but what we didn't understand is that consumers are trading all the way down or completely eliminating unnecessary spending where they can." He went on to highlight the success of McDonald's and WalMart in the market and stated that "we're lost in the middle". The consultant's view was much the same as his premium level service remained strong but the effort to bundle services and charge more just wasn't working. He stated, "clients can do much of the work on their own and they are more selective while also demanding deep pricing concessions. We'll just have to skinny down our business to survive."
Both comments reflect the explosion of products and services which have become available today. Quite frankly, we've simply got too much of everything and the capacity in most industries will need to be reduced and refocused to meet the demand. Whether it's reducing the number of breakfast cereals on the shelf or car dealers on the block, companies will need to get smaller, more focused and more efficient. In such an environment, the premium product strategy with the ability to maintain pricing is attractive, and the low cost and high volume strategy will deliver success to the most productive and aggressive. What isn't entirely clear is how businesses will survive positioned somewhere in the middle. You're either the best or the most affordable option or you may find yourself "lost in the middle".
Let me know your thoughts. How do you think things will change? Will the markets ever be the same and what are the trends we're likely to see in the new normal?
