The Death of Average

Retail_RevivalThose of us in the technology business often look at the convergence of new technologies—cloud, big data, mobile, and social media—as the primary drivers of change within the business world. But there are other monumental forces at work altering the landscape—social, economic, and demographic—as retail guru Doug Stephens points out in his excellent recent book, The Retail Revival: Reimagining Business for the New Age of Consumerism. While Stephens’ book is targeted to the retail industry, it has ramifications for every enterprise.

Stephens opens his book with, “If you earn your living in the retail industry…the possibility that the business you’re in will still exist in two, five or ten years is very slim.” So much for subtlety. He goes on, “To put it simply, there has been no other point in history when so many aspects of disruptive change have collided and conspired to wreak havoc on the retail and consumer packaged goods industries.” The changes are disruptive and they happen quickly. Stephens writes about a company he worked for that took 123 years to reach a billion dollars in sales with a staff of over 1,000. Instagram reached that billion dollar level in 2 years with a staff of 12!

One of his messages is that mass marketing to the middle class (at least in the longer term industrialized countries) is dead. We know about the aging of the baby boomers and the shrinking of the middle class—but Stephens drives this home. “Today, the top 5 percent of income earners in the United States is responsible for an astonishing 37 percent of all consumer outlays. The bottom 80 percent of income earners is responsible for only 39 percent.” Whatever the impact on retailing, these are appalling figures for our society.

Many traditional retailers whose mass marketing models began in the 1960s—engaging the middle class with average products sold by massive advertising budgets—haven’t modified their business models to deal with the new demographics—fewer middle class, aging baby boomers, rising ethnic groups, and non-traditional families. “They sold average things to average people, at average prices in average stores, and did it all with average levels of service. Today, there is no such thing as an average or typical consumer,” says Stephens.

Mass marketing is shrinking rapidly because mass media is shrinking and being replaced by a vast range of digital and social media. In a clear indication of the shift in marketing approach, the company that practically invented mass marketing is changing. Says Stephens, “In February of 2012, Proctor & Gamble announced a $10-billion restructuring effort—only the second in its 175-year history.” Part of this restructuring was a significant shift of dollars to digital media from mass media.

Stephens’ recommendations to retailers—get out of the middle. Go “high fidelity” which he defines as exclusive, premium price, and highest quality or “high convenience” defined by low priced, easy to buy, and low or self-service. His recommendations are more involved than this, but the basic message is that there is a new, savvy type of consumer out there, armed with empowering technology—who won’t stand for retailing as it has been traditionally practiced. Power has shifted from retailers to consumers, according to Stephens (but what about the power of digital media giants–Amazon, Google, Facebook, and others?).

As technologists, it behooves us to understand more than technology. While technology is a powerful enabler, other changes—demographic, social, and economic—need to be understood before the power of our technology can be brought to bear on the economic and social issues of our time.

    Comments

    1. “Stephens writes about a company he worked for that took 123 years to reach a billion dollars in sales with a staff of over 1,000. Instagram reached that billion dollar level in 2 years with a staff of 12!”

      Good post. Retail and many industries are changing at a pace we’ve never seen before. One quibble with the example above. Note the company of 123 years had $1B in SALES. Instagram was acquired for $1B. That is a pretty big difference. One actually exchanged goods/services to customers for their $1B. The other sold its potential to an acquiring company. :-)

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