Scott Anthony’s post on the Harvard Business Review entitled The Great Disruption and the New York Times article explaining the Economic Mess that Eludes Description got me thinking. Are we experiencing these disruptions in the market as a result of more educated consumers?
It’s no secret that customers have become more informed over the years:
- Customers have more tools then ever to research products before they purchase. Sites like Google and Amazon provide instant answers while cell phones and laptops keep consumers more connected then ever.
- Customers are encouraged by sites like Amazon and Netflix to review products.
- Blogging and microblogging platforms that provide the perfect place for consumers to praise or critique products.
In 2005 Steven Johnson convinced us that the average joe is smarter then ever in Everything Bad is Good for You and more recently Clay Shirky pointed out in Here Comes Everybody that people have not only become more informed, they are talking to each other and forming their opinions as a group, not as an individual.
This is both a blessing and a curse.
On one hand, people are becoming more familiar with diving into the long tail to find exactly what they’re looking for. They search, they ask questions and they find answers that point them in the direction of niche products as often and big name products.
For example, a customers options for t-shirts used to be limited to the options at the local mall. Their interest soon turned to online outlets for their brick and mortar stores and then to strictly online retailers such as Threadless. However, this trend didn’t stop. Customers began to dig deeper. Now they subscribe to blogs to find small vendors who create shirts that play to their specific interest. The customer’s taste has more freedom then ever due to the fact that they have much finer control over their shopping experience.
The customers is no longer at the mercy of the market, the market is now at the mercy of the customer.
The rules have changed. The rules are continuing to change and the industries that have failed to recognize this are failing at a tremendous rate. Entire sectors of our economy have continued basing their business on their customers ignorance. Banks hope to bamboozle customers with complex loans, car companies are still operating under the auspice that we’ll buy the cars our market segment wants, and not the cars we want. Customers are more educated then ever, the power of branding is eroding and there are entire sectors of the market that refuse to change.
Disruption in the Market
Publishers were hit the hardest, and earliest, by The Great Disruption. People learned that information is free online. Publishers had built entire empires off of buying and selling information. The music industry was loudest in it’s attempts to battle the slow march of it’s customers changing expectations.
In 2001, people began downloading music for free, either from Napster or from fan webpages. Not only were they downloading free music they were finding bands they would otherwise never hear of. Unsigned bands quickly realized that they did not need a record label to publish their work, all they needed was some webspace and a little bravado. Customers also realized that they no longer had to trek down to the record shop to find new bands, the could hop online and sample new music for free and pirate entire albums far quicker, easier and cheaper then if they purchased discs in person.
The music industry used to market based on their expectations of their customers’ taste. They controlled which bands toured together, which CD’s were displayed next to each other and what genres even existed. Their marketing was based on controlling their customers’ tastes.
Over the years, as the cost of publishing quickly approached nothing, finding new bands became easier and easier for consumers and the record labels marketing tactics lost relevancy. Paying nearly $20 for a CD just didn’t make as much sense in 2001 as it did in 1998.
Now in 2008, we have sites like myspace and last.fm that connect fans directly to the artist and offer free streaming music and music recommendations. Record labels have finally adapated to trends, but they waited seven years to do so.
As a result albums now go for $9.99 on iTunes, nearly half of what they went for in 2001. The customers got informed and drove the price of a product down.
The American car industry is experiencing a similar situation, just on a slower time line. Customers are waking up to the fact that they can no longer trust the ads to decide which car to buy. They know can no longer trust the salesman to direct them to the best car. They turn online for customer reviews, for recommendations and for statistics they perceive as true. American car manufacturers are competing on a global level but are still playing by the old rules. They’re creating cars based off customer segments, not based on what customers want. They’re innovating at a snails pace compared to their competition. They aren’t creating quality cars with features people want, but instead focus on cars that appeal to market segments that are increasingly irrelevant.
The car industry is ignoring all the signs of market disruption.
Customers are waking up to realize they’d rather have a small car with good mileage then a large gas guzzling SUV. SUVs have been receiving a media backlash for years but the automakers are only beginning to respond after losing sales to overseas markets.
Companies have to try harder then ever to provide quality products and predict customer needs. Apple is a fantastic example of this. The iPod was released in October 2001 just as digital music was in it’s fledgling phase. When they realized tying their music player to only work with apple hardware was hurting sales they responded by opening it up to Windows users only 9 months later.
This is the kind of responsiveness todays unstable market requires. Businesses can no longer afford to rest on their laurels or to continue trying to push a sub par product.
Customers are informed and disruptive; you better be flexible and forward thinking enough to appease them.
