It’s amazing what happens to your brain when it is refreshed after two weeks of vacation. I worked my way through a stack of Wall Street Journals and magazines and noticed a number of articles pointed in the same direction.
In one WSJ article Procter & Gamble is contemplating selling many of its brands, even such iconic ones as Ivory soap. Another article mentions that retail stores are seeing a decline in traffic and they believe it’s because of increased online shopping. And today I see a WSJ article about Home Depot having decided to spend over $1 billion in improving its online infrastructure instead of building new stores.
These happen to be examples of large companies dealing with significant changes in buying behavior. The changes are so significant that they challenge the core of their business models.
It is refreshing to see Home Depot making a significant change in its prior strategic direction. They are not alone. I also found an article in BloombergBusinessweek in which GE is mentioned as wanting to act more like a startup through its FastWorks project. However, many companies are not acting at all or are too slow.
Let’s take a look at what is happening and different ways companies can react to it. The trends are:
Even large companies with many brands do not have the resources to make all of them stand out in the crowded marketplace. Those brands that do not stand out cannot make it. Ivory soap was recognized by many women all over the world for decades as the brand to trust but millennial’s do not relate to it and its disappearing in the noise generated by other brands such as Unilever’s Dove. What Ivory soap did for years was to rely on TV ads to keep its brand in front of people. These days advertising on TV is not enough anymore. How do you manage all the media adversing platforms and stay relevant?
Younger generations have very different shopping behavior and one of them is that they prefer to shop online. We are now in the stage where major retailers are starting to see that 20 and 30-year-olds are determining store traffic. It has been some time in the making. That means that stores need both physical and web presence to succeed.
This younger generation is also used to using apps on their phones to manage their life. They do their shopping with apps and get their information from apps. A Wall Street Journal article of August 25th mentions that McDonalds has lost the appeal of Millennials and that it wants to increase communication about their social responsibility through newly developed apps. A necessary step but very late.
How can companies react?
- They can make sure that they have a web presence and a physical presence so the customer can decide what channel to use.
- Set up a separate team that looks into simplifying your business. Make a frictionless, easy-to-use, effortless app that draws new customers, the younger generations.
- Do what GE does. GE has made arrangements with companies that could disrupt its business such as Quirky.
- Buy an online presence or app and integrated with the rest of the organization. Not an easy approach since cultures often do not mix.
It is critical to first realize what the threats are. A good approach is to watch the customer and make sure you stay close to them.
This means that companies need to make strategic decisions.
- What is the best way to defend existing business and set up for growth? Does it include a digital leg for the future.
- If you decide to have a digital leg, do you develop it, buy it or cooperate with others?
- How broad do you want the approach to be? Do go narrow or broad? Both carry risks.
- What resources are critical to develop a digital future? Hire or use consultants?
- What organizational structure works the best to be successful in the long term? Within the organization or separate?
These trends will take some time to play out. Don’t rest because you will need the time to figure out how you need to react and get it implemented well.