New products meet shrinking market

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Too many movie theaters? You bet. In fact, there seems to be too much of just about every product you could name.

For example, GC Cos., operator of General Cinema theaters, is the latest movie chain to seek bankruptcy protection -- after a building binge that left the landscape dotted with more theaters and not enough bodies to fill seats.

These movie theater companies weren't paying close attention to how their customers' priorities were shifting. In an era when "focus on the customer" is a corporate mantra, these companies could have seen and responded to the exodus of moviegoers from older theaters to new megaplexes with stadium seats and state-of-the-art sound systems.

But most companies often don't know -- and so don't take advantage of -- even the most basic facts about their customers. For many, gathering and analyzing customer information has not been a high priority in recent years. Attention was focused on improving performance through re-engineering, strategic sourcing and other operational improvements.


As the General Cinema example illustrates, priorities must shift. The need to be customer-focused, once a bland axiom, is now a do-or-die imperative heightened by two trends that combined to create an ominous new equation.

The first is the growing number of products and services. In Western economies, the number of "value propositions" -- that is, products, services or combinations of the two that offer value for a price -- has exploded. This growth is fueled by a variety of factors, including new channels of distribution, most recently the Internet, and the move toward "micro-segmentation" of the customer base.

Some 25,000 new consumer product stockkeeping units were introduced in 1998, compared with 4,400 in 1980, according to a recent study by the Federal Reserve Bank of Dallas.

Colgate-Palmolive Co., which sold two types of toothpaste in the early 1970s, today offers 17. There are now more than 200 brands of that nutritional staple of the American diet, salsa.

The credit card industry, which offered a handful of cards in the 1960s and '70s, has become a value proposition machine, churning out tens of thousands of distinct card offers daily. The number of U.S. mutual funds per million people rose from two in 1980 to nearly 30 today.

It's not limited to package goods and financial services. It's occurring in automobiles, telecommunications equipment, magazines, amusement parks, fast-food -- even, according to Adult Video News, in X-rated films, where new releases have gone from fewer than 2,000 10 years ago to more than 9,000 last year.

On the face of it, this looks like a healthy expansion of supply and presumably demand in a robust economy. But things look less rosy when we examine the second trend -- stable or slowing population growth rates in the U.S. and elsewhere in the developed world.


The U.S. population has been growing at just under 1% in recent years, a rate that in a decade or so likely will fall to about 0.5%, according to the Census Bureau. France and Japan are experiencing nearly zero population growth. Russia's population has been in decline since 1990, and Italy's will begin to decline next year. China, the country with perhaps the most potential for economic growth, nonetheless has a nearly flat growth rate of 0.8%.

Together the trends yield a sobering statistic, something we might call "value propositions per capita." Although no economic agency tracks the "VP/C ratio," it's undoubtedly rising at a significant rate every year in the Western world.

What implications does this ratio -- with its exploding numerator and stable or shrinking denominator -- hold for managers? For one thing, securing and holding onto customer "mindshare" for particular products and services will be increasingly hard to achieve. Ever rising ad spending in the U.S. is a reflection of companies' efforts to buy their way into people's brains.

Grabbing customer "timeshare" will also become more difficult as consumption itself becomes more time-consuming in a world where many people perceive their spare time to be shrinking.

The availability of more products and services, each with a growing number of complicated features, means more time must be spent actually evaluating, selecting and using them. And that's occurring as many Americans work longer hours.


Even among those not working longer, a great many new activities now compete for their spare time. They want to watch more TV, play more video-games, take vacations or spend more time on the Web. The time for buying and using new products will continue to shrink, especially products such as movies, which require our time as well as money.

If the Internet will help people shop more efficiently, it also will extend the clutter of choices available to them.

In this environment, companies that lack an intimate knowledge of and relationship with their customers will wither away. Managers must ask themselves a number of questions:

* Why do my customers choose my products or services over those of my competitors?

* As products and services continue to proliferate, how will I distinguish myself in the eyes of customers?

* How are the priorities of my current and future most profitable customers changing?

* How do I retailor my offerings in anticipation of those changes?

* How can I reach through the noise and make my pitch?

Being able to answer and act upon such questions will help managers thrive in a cluttered world, one in which a stable number of consumers has nearly infinite choices in their economic lives but a finite amount of time and attention.M

Eric Almquist is VP, Mercer Management Consulting, Boston, specializing in customer science and brand strategy.

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