Where Will Companies Find Success in Tomorrow’s Marketplace?

Future success will require businesses to shirk convention, take risks, and search for growth in uncomfortable places

By J. Walker Smith    November 15, 2018    

PARTNER CONTENT

While the literature on growth is vast, almost all of it presumes that growth is a matter of following well-known principles of business as usual. But growth today is found outside the comfort zone of business as usual, so new thinking and unfamiliar ways of doing business become imperative.

Growth in uncomfortable places is the clarifying lens that companies must look through when planning for the future. Here are five key facts about the global marketplace to put this in sharper focus, and several critical imperatives that point to what companies must do differently to succeed.

 

Five Facts to Know

Consumer spending power has shifted. This is seen in the disparity between the 43 percent real income growth per capita from 1980 to 2016 for the middle four deciles of the global population and the 94 percent enjoyed by the bottom half, as reported in the "World Inequality Report 2018." This contrast of fortunes for the traditional versus the emerging middle class shows that spending growth opportunities are outside companies' traditional comfort zone. Incumbent brands have doubled down on reaching this emerging middle class, but it's not the same consumer that companies have been comfortable with in the past.

This trend is emblematic of a broader splintering of audiences into niches of all sorts: income as well as culture, religion, identity, social engagement, and, especially nowadays, politics. Every splinter requires a different strategy, and this means uncomfortably grounding the economics of scale in a conglomeration of niches rather than the efficiencies of mass production and mass marketing.

The second critical shift in the marketplace is the bottoming out of institutional trust over the past decade. There has been an inversion of trust globally from institutions to individuals, from the status quo to reformers, from official statements to leaked information, from data to personal experience, from politeness to bluntness, from advertising to social media. Consumers are turning to smaller worlds of confidence and guidance that offer a greater assurance of shared interests.

Influence comes from intimacy, not authority. Brands must find intimate ways outside the comfort zone of traditional practices to convey transparency and honesty.

Paralleling the shift to smaller worlds is an evolving view of digital. The paradox of the future is that it is not only more digital, it is more analog too. Human touch is everywhere, from rebounding sales of vinyl LPs and printed books to urban greenways teeming with farmers' markets, food trucks, cafés, festivals, and coffee shops. Anxious pushback about technology is accelerating these trends.

Just as companies are getting comfortable with digital, consumers are demanding more human scale engagement. In effect, consumers want an analog upgrade to their digital lifestyles, and not simply as a respite from digital but as the very essence of digital itself. Voice technologies are deepening the appetite for analog. Inherently, voice is a conversation at human scale, so with the rise of voice, analog becomes the interface for digital. Not only must brands learn to operate at digital scale, they must not diminish human scale while doing so, and that paradox is uncomfortable.

The growing interest in analog is part of a shift in consumer spending to services, which now command twice as much share of wallet as goods. McKinsey looked at spending growth in the U.S. from 2014 to 2016 by breaking it into experience-based versus non-experience-based services. Far and away, experience-based services are the fastest growing. The marketplace has pivoted from experiences as a point of differentiation to experiences as table stakes. Add in a future of augmented reality, virtual reality, and voice and none of this is within the comfort zone of business as usual.

Finally, decades of research on short-term memory has converged on seven, plus or minus two, as the maximum number of things that consumers can typically keep in their heads while making decisions. And while the amount of information washing over consumers has skyrocketed, they are not opting out of brand communications. Consumers want more, but their finite capacity to take it all in makes it challenging for brands to break through. In fact, 2016 WPP/Kantar Millward Brown BrandZ tracking shows brand clarity declining even as brand awareness is on the rise. In other words, consumers are opting in more, but they can't keep up.

Brands must rationalize and temper engagement, and tie messaging into experiences, human scale, intimacy, and personalization. All of these dynamics are interwoven and mutually reinforcing. What they add up to is a future of growth in uncomfortable places.

 

Critical Imperatives to Follow

Incumbent companies find these emerging dynamics of opportunity and growth to be uncomfortable for several reasons. In part, it is because companies cannot see where growth is found these days. Even if they can see it, they fall flat because their marketing and retailing cannot reach consumers. Compounding this, companies cannot afford to shift investments to uncomfortable places. And many companies worry that they are not able to do what it takes irrespective of what they can see, reach, or afford.

Oftentimes, niche brands are better attuned to the hotspots of growth. Incumbent businesses just don't see what's happening or they are blind to the significance of the opportunity. A broader view of the marketplace, or a so-called wide-angle lens, avoids this failure. Such a view enables companies to step back and see a more expansive definition of the category or consumer need. It also scales the area of focus so that smaller opportunities don't look bigger than they really are.

Even if an opportunity can be identified, efforts to create or convert demand will feel uncomfortable unless consumers are effectively engaged. Companies must reach consumers in a language native to them in the outlets of their choosing.

Reach is best achieved through a human-centric approach that meets people where they want to be, not where companies would prefer them to be. Strategies should be built around lifestyles, not consuming or shopping. Execution must center on humans, not on brands or outlets.

One of the most common objections to investing in uncomfortable places is that resources spent there won't generate as much return as resources spent in more comfortable places. There are several reasons why companies fail to recognize the value that can be optimized by investments in uncomfortable places.

One reason is timeframe. In most companies, few people have responsibility beyond financial objectives tied to short-term reporting. This leads to optimization against a time horizon that may not be valuable or relevant strategically.

Another reason is that the combination of more powerful technologies and more detailed databases has given companies the ability to measure performance at high levels of granularity even though every specific activity is rarely significant. Optimization can be too laser-focused. Uncomfortable places often require a series of activities rather than one big activity, and the uncomfortably small or null gains of individual short-term activities masks their potential to improve the bottom line.

Uncertainty is another reason, and it may be the most important. Rarely are people in big companies assigned tasks for which high-risk experimental, innovative approaches are an option. Managers who miss short-term objectives don't get raises or promotions and aren't retained. Thus, the authority to optimize for value is unavailable.

Companies often lack the confidence or skills to do what it takes to succeed in uncomfortable places. Companies must become more obsessed with real-time learning that is connected to execution and operations. Individuals must be better trained, and organizations must redesign processes to ensure that knowledge informs decisions in a timely, effective way.

The final piece is experiences. As noted, this is driving growth in spending. This is also what emerges when companies master the critical skills of operating in uncomfortable places. Brands and shopping become experiences that will create and convert demand, giving companies the confidence and rationale to continue seeing, reaching, affording, and doing what it takes to grow and succeed in uncomfortable places.

J. Walker Smith (@jwalkersmith) is the chief knowledge officer for brand and marketing at Kantar Consulting. You can email him at jwalker.smith@kantarconsulting.com.