What happens when the rubber band snaps?
The inspiration for this post goes to Rob Hindley from The Marketing Channel based on a brief conversation we had regarding Wal-Mart.
The question is what happens when the rubber band snaps?
Does a price leadership role make sense anymore?
Treacy/Weirsema (The Discipline of Market Leaders) say a company/brand can do 1 of 3 things on a world class, best of breed basis:
1. Best product (ie innovation/design) ie Apple
2. Best service (customer intimacy) ie Nordstrom, Holt Renfrew
3. Best price – ie Wal-Mart
At some point you hit bottom chasing down the price/cost curve - and in the process:
a) Suppliers dislike doing business with you because the cost squeeze tends to create a win-lose relationships
b) Consumers become conditioned to the lower price and if you can't do price rollbacks anymore - you sow the seeds of disenfranchisement
c) Wall Street punishes your stock because same store sales numbers slow/flat line
Yet in the course of Wal-Mart's journey they have:
- Helped flatten the world with outsourcing
- Displaced local production
- Led cost/supply chain innovation
- Sparked the debate on global optimization of resources – including greenhouse gas implications of shipping product half way around the globe
- Made things less expensive to buy
Does the price option make sense anymore given the short-term focus of Wall Street and the punishment it doles out? Is it too difficult to sustain? Are companies/brands better off pursuing product/service differentiation?
What happens when the rubber band snaps?
