(Today’s post has been written by Greg Walters, President of Walters & Shutwell, Inc.)
The other day, Elon Musk, founder of Tesla, made clear his displeasure over a rule banning Tesla from directly selling its cars in the state. As Musk stated, current Tesla locations “will transition to being galleries, where you can see the car and ask questions of our staff, but we will not be able to discuss price or complete a sale in the store.”
Although the New Jersey Motor Vehicle Commission previously granted a license allowing Tesla to sell vehicles directly, the New Jersey Coalition of Automobile Retailers (NJCAR) protested, arguing that the licenses might allow a less scrupulous auto dealer to sell direct. The outcome? New rules that limit Tesla’s direct sale business model.
In my humble opinion, these shenanigans reflect the death throes of an old, established business model. Customers are not letting large, foundational organizations and old, hierarchal structures stand in the way of fulfilling their demands. Consider the challenges faced by the printing and music industry. People did not stop reading the news or listening to music. Today, we consume on our own terms and in our own way. The question is: is your business adapting to this changing world? And are you letting information mobility work for you? If your company can deliver effective marketing through one of the many channels available to today’s consumer, you may just be able to get the Information Age to help you market your product.
The Old Business Model: “…any color, as long as it’s black.” – Henry Ford
Henry Ford’s famous quote reflects a production or supply-side mentality. He revolutionized the industrial age with assembly line production based off interchangeable parts, and economies of scale were maximized by this repeatable and predictable manufacturing process.
Marketed to the middle class, 15 million Model T’s rolled off assembly lines between 1908 and 1927 – that’s 17 years straight of what was basically the same model. As long as the Model T remained ahead of its competition, priced for the middle-class, and as long as the market’s requirements remained stationary, this was a successful strategy. After all, there was no reason to innovate in any other area other than cost and price reduction.
Ford built it and “they” came.
In recent past, end user behaviors have been managed, molded, created, and funneled into whatever a large manufacturer was producing. Choice was limited. Mass production was the norm for the day: automobiles, PCs, transistor radios, lunch boxes, copiers and printers were produced by the millions in pre-designed, easily replicated forms. “Customization” was defined by adding a defined set of options.
Even today, both the Dodge Challenger and Charger are produced under the same roof, on a single assembly line – the appropriate trim and lighting packages attached to each.
That was then, this is now
Today more than ever, the ability to move quickly from idea to distribution lends itself to meeting fickle and fast-changing customer demand. This new dimension is accelerating at an increasing rate – the more flexibility customers experience, the more they demand. Consequently, disruption has become part and parcel of the supply and demand model.
Creating demand and dictating trends is a fading practice. Today, firms who recognize what is about to happen, instead of controlling what “must happen,” will prosper and flourish. Those still in the past mindset of “generating” demand will fall. The age of “as long as it’s black” is waning.
Top Down, Bottom up
On the consumer side, market studies and focus groups helped companies develop campaigns, design attractive logos and develop call to action statements, all shaping demand. When you think about it, this process was a primary way for consumers to influence product offerings and help design more appealing color and packaging combinations. Yet, established companies continued to produce products which fit into production schedules, matched market predictions and was marketed toward created and organic demand.
Somewhere along the way, predicted demand gave way to demand creation. Design and engineering budgets shifted to marketing and brand identification. Big, established companies stopped trying to predict “where the puck would be” and started creating or funneling demand into a specific direction. Examples of this approach today abound: local cable TV providers, GMO labels and in the extreme, the Affordable Care Act.
Now, micro-trends have significant impact and affect broader marketplaces more than ever before. Individuals are educated, focused with their purchasing dollar and more apt to create ways of satiating their own demand. In effect, today’s consumer expects a more personalized approach and flexible services, all without extending the gratification cycle.
Which brings us to the question that should be guiding your business: are you providing services which meet a demand or attempting to fill a demand created by you?
Change is Already Here
Consumer demand is ready to outpace current supplier innovation – perhaps not in volume, but in fragmentation. Today, if I want to purchase anything, I can click away at the keyboard for a few minutes and instantly source anything from a pair of socks to a Tesla Model S.
In 1921, the Ford Motor Company had approximately two-thirds of the U.S. market. By 1926, this share had fallen to approximately 1/3, and the next year, the percentage fell to just 15 percent. This time, General Motors was the disruptor, offering “A Car for Every Purse and Purpose,” directed to provide automobiles for specialized market segments – a total contrast to Henry Ford’s, “Any color…so long as it is black” approach.
At first, Ford recognized a future trend, and then he dictated existing trends. But he finally fell prey to competitive disruption and his inflexibility. Of course, Ford didn’t go out of business, his core business model was sustainable. But that isn’t always the case. So, how will established a company’s business model, familiar with dictating trends, respond as their power shifts elsewhere?
Look to Tesla.
For now, the New Jersey auto dealer franchise system forbids automakers selling direct to end users. In the end, if Tesla is accepted by the public, no level of legislation will prevent the obliteration of the time tested dealer model. Demand typically trumps legislation.
Are you waiting for big companies to tell you what to buy or sell, or are you engaging with your clients to understand their needs on a one to one level? Are you ready to shift into a more flexible process? Can you connect with your client base at the grassroots and remain relevant? Will your internal processes, administration and production, adapt to a new and unpredictable business model? These questions, more than any, will set the course for your future growth.
What do you think? Are customers more demanding? Are the existing hierarchies and models compatible with a world where consumers are shaping demand more than ever before?
Greg Walters has been in the technology realm for over 25 years. As President of Walters & Shutwell Inc., a consultancy geared to help healthcare and commercial business clients manage and optimize their technology investment, Greg is often in the field discussing real world processes and solving everyday business problems. During his IT sales and services career, he managed a large West Coast VAR’s struggling managed print services practice into profitability. Between the years of 2007 and 2011, Greg authored the notorious destination site, TheDeathOfTheCopier. A prolific writer and frequent speaker, Greg has a unique and provocative view of technology’s affect on business and society.