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Market Sensing Change

Volume 10 Letter 7

This moment is likely the most challenging commercial environment that most of us will ever see. The slow return to economic growth is not bringing the return to the old customer environment many of us hoped for. Instead customers that have survived the last three years have irreversibly changed what they value. As business leaders and marketing professionals, we now have to reacquaint ourselves with our old, as well as potentially new, customers. We must redefine our market segments and transform our business strategies to meet our customers’ evolved needs. Failure to do so can have bad consequences – take the ‘big box’ electronics retailer Circuit City.

Once a highly successful big box electronics store, Circuit City failed to reinvent itself when the competitive landscaped changed. Faced with competition from newcomers like Best Buy and challenged by new online retailers like Amazon.com, Circuit City simply could not adapt to the new competitive landscape. At the time computer gaming was growing in popularity yet Circuit City failed to see the trend and consequently was thin on inventory and new titles that gamers were demanding. At the same time on-line purchasing was becoming popular with companies like Amazon.com leading the way. Circuit City’s website paled in comparison to Amazon.com and other ‘built for purpose’ websites that specialized in electronic goods sales. Unable to adapt, Circuit City liquidated operations in 2008.

It used to be that a major business transformation was a once in a lifetime event. Increasingly however businesses must reinvent themselves at regular intervals to readapt to ever changing customer demands. How does one stay ahead of the curve and turn market turbulence into market opportunities?

There are three approaches to strategic development:

  1. Reactive Change: Called the burning house strategy – one can wait for the market to change and react to it. Obviously a necessary part of any businesses strategy but because of its reactionary nature this rarely leads to market leadership or market gains. If you often find yourself in crisis operating mode and only reacting to the market – your future could be in jeopardy.
  2. Programmed Change: This type of strategy is often developed to contain a competitive threat or regulatory change imposed on the market. These changes need to be carefully thought out with plans that will yield more lasting change. Again these changes rarely lead to market leadership.
  3. Market Sensing Change: This is true strategy – sensing future business conditions and translating them into market opportunities.

The critical elements of any strategy are speed and adaptability so the company can successfully maneuver to take advantage of any trend the market adopts. Too often managers think strategy can be defined as a series of choreographed steps – an easily plotted formula for success but in fact a good strategy positions your company with many options and develops a team that is quick to adapt to new market conditions. Market sensing can be easily misconstrued by outsiders as reactive change but clearly it is not. Zara, the Spanish clothing retailer is a market sensor. They do their best to anticipate market changes by closely following Pop star fashions. But they also know they can’t always accurately predict future fashion trends so Zara developed a strategy to flip their store inventory 24 times a year meaning if they miss a fashion change they don’t miss it for long. Contrast this to normal retailers who turn their inventory twice a year – miss a fashion trend and its six months before you can potentially recover. Miss it twice and your future is questionable.

Developing a business strategy takes discipline. Most managers were trained to react – not to anticipate and build plans. Yet it’s this skill, this ability to look beyond the obvious that allows one to turn market turbulence into market opportunities.

It Makes Sense to Adjust, a Strategy & Leadership paper by Vinay Couto, Frank Ribeiro, and Andrew Tipping

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