All things are relative.
However, as a measuring template this contention has limited value or meaning for many businesses and consumers, particularly in the prevailing marketplace
The point was highlighted to me during, and as a consequence of two recent series of radio and television interviews in which I participated – on two topics, being:
“Low Interest” credit cards
Comparative Interest Rate – Motor Vehicle purchases
Promises of “low” and 0%, 1%, 2% comparative interest rates sound tempting, if not alluring. But what do they mean?
RELATIVE TO WHAT?
The official Reserve Bank interest rate in Australia is 2%. The average applicable rates for “Low Interest” credit cards among the five major banks in Australia exceed 13.45%. Low? Relative to what?
The answer, it seems, is relative to the “normal” bank credit card interest rates of 18-21%
The current 47 offers of introductory rates of 0% for the establishment of new cards typically feature a rate exceeding 20%, once the introductory period expires.
And 0% comparative interest rate charges for the purchase of a new motor vehicle do not equate to nil interest costs.
Many business plans and SWOT Analyses suffer from the same deficiencies. Measures of success, competitiveness and profitability tend to be comparative to contemporaries.
It is a function of orientation. Most such plans and analyses are centred on a business … not the fit of that business in – and to – the marketplace.
I have been encouraged and enthused in recent times by the outcomes of business development, and strategic review analysis workshops that I have facilitated for several client companies and associations.
Embracing new orientations has contributed to consistently and sustainably enhanced performances. Furthermore, morale has improved, confidence increased and cohesion improved.
It is significant, and apparent, that the more global appreciation of how one – be it a company, association, product, service or community – fits the marketplace, economy and environment, the better the identification of opportunities and strategic options.
The key message: Now is the time to think big.
DON’T GET AHEAD OF YOURSELF
The pace of technology innovation is accelerating. Challenges and opportunities are evolving rapidly. However, care must be taken to ensure that companies, products and services are not out-pacing consumers, their needs and expectations.
Take for example, the quickened pace of the roll-out of automated, self-service checkouts in supermarkets.
In many outlets they number between 40% to 60% of those available to customers. Such percentages contrast the 16% of adult Australians who declare a favour for self-serve alternatives.
It is an emotional issue for many, with assertive expressions freely shared.
Noticeably, there is a “push-back” by a significant proportion of shoppers who favour, are satisfied by, and seek out human-operated checkouts.
Store loyalty is being adversely affected. Significantly, the rapidly growing Aldi discount supermarket network has two distinct characteristics: lower prices and universally-manned checkouts.
The introduction of technological innovations can save money. But such internal efficiency can be, and is, being achieved at the cost of external effectiveness, relationships, loyalty and customer satisfaction.
One lesson to be learnt is that technology should complement – not replace – humans.
A well-documented precedent was the introduction of automatic teller machines and the corresponding widespread closure of branches by the major banks.
The backlash from clients saw a quick decline in loyalty, the opening and operating of multiple accounts with differing banks, and the emergence of independent financial planners and mortgage brokers, to the detriment of the major banks.
A subsequent and consequential change of direction, with the promotion of the establishment of new branches, was implemented by several of the dominant bank brands. They had simply got ahead of their clients.
Now, a more measured evolution of on-line and mobile banking is being accepted and embraced by increasing numbers of consumers.
It is important to keep the customers in the “driver’s seat” or at least in the front passenger seat. The results are so much better than if the customer is assigned to the “trailer”.
DIFFERING COSTS OF PRODUCTION, REPRODUCTION
The concept of, and concerns about production costs are so …. mercantile.
That was an era in commerce that is long past, and now out-dated. Arguably, the peak occurred in 1637, in the Netherlands, when the price of tulip bulbs, imported from Turkey, collapsed from 2500 florins (also known as Dutch guilders) to very little. Some people “had gone mad” for tulips. Or was it that they were simply mad? Shades of prevailing property and share prices in a range of marketplaces.
In the instance of tulips the bursting of the bubble had little or nothing to do with costs. An unexpected and rapid disruption to the supply had people take pause and re-evaluate the “true value” of a tulip bulb.
The consequences were immediate, widespread and dramatically substantial. This is a lesson relevant to all at this time.
Andrew Carnegie, the US industrialist, may well have argued that production, commerce and industrial might had attained their zenith in the late 1800s.
In reality, it is immaterial. Market presence, success, sustainability, wealth, value and intellectual property worth have evolved from material goods to the intangibles, of information, intelligence and communication.
Quantifying the value and worth of brands, products, services and skills is increasingly difficult, and highly subjective. One person’s junk (mail) is another’s treasure!
Moreover, an abundance of information is readily available to all …. and sundry. What’s more, a lot of it is accessible free-of-charge.
The capacity to retrieve, collate, analyse and selectively disseminate intelligence is a key determinant in a sound measure of worth in the prevailing digital era.
Typically, the cost of producing, using, sharing and supplying information and intelligence is typically minimal, marginal, or possibly, even zero.
THE REAL ISSUE
Among the traditional, established and recognised barriers of entry are production costs. These include capital outlays, premises, materials, inventory, workforce, supply chains and distribution returns.
Individually and collectively, these could be, and were, formidable impediments, barriers and filters. Risk:Benefit analyses could be centred, and the conclusions determined, on these factors alone. No longer.
Original, “ground-breaking” products and services do require considerable investments in time, money, resources and people.
However, late-entrants into a product/service range, marketplace and sector can enjoy low-cost carriage by those “Barbarians at the Gate,” who are keen to intrude on the operations, presence and revenues of established market innovators and leaders.
The fundamental reasons are very conspicuous. While production costs can be, and often are, very high, reproduction costs tend to be minimal.
Original equipment manufacturers with enviable brand names like Caterpillar, Komatsu and the like, find it difficult to counter prompt, efficient and effective intrusions by unbranded interlopers. Today, reproduction does not imply inferior quality.
Protecting the integrity of intellectual property, design, processes and ingredients is becoming increasingly difficult. Patent– and copyright protection is difficult, expensive and time-consuming to invoke, enforce, police and maintain.
There will doubtless be increasing circumstances of “IBM-compatible” products and service offers, as a consequence of 3-D copying and similar technologies and capabilities.
Therefore, accelerated cash-flow positive returns will be possible, enjoyed and shared by “Johnny-come-lately” competitors, and substitutes.
Product lifecycles will inevitably be shortened, margins narrowed and exclusivity-price premiums curtailed, if not eliminated because reproduction is cost-free.
THE NEED FOR URGENCY
The increasing emergence of inequitable, low-cost reproductions in crowded, competitive and static marketplaces will underscore the need for all entities to place greater emphasis
and value on enhanced productivity.
Windows-of-opportunity will be limited, product lifecycles concertinaed, investment return ratios will necessarily be refined, and risk-tolerance criteria will be reassessed.
A week may be a long time in politics. In business, the cycle may extend to, say three years, but seldom much longer.
Self-induced obsolescence will be considered a virtue.
Production costs may appropriately be outsourced, allowing product/service innovators and entrepreneurs the opportunities and needs to embrace the reality of utilising, profiting and creating wealth from stark and confronting NIL reproduction costs.
That will take a change in the business modelling and most likely a change in mindset.
Barry Urquhart of Marketing Focus is a challenging, impactful keynote conference speaker, an original business thinker and a consumer behaviour analyst.
M: 041 983 5555
T: 08 9257 1777