In many companies, 2010 will likely be remembered as an improvement over 2009, when merely surviving was viewed as a testament to good health. But last year was also an exercise in patience, as the dislocations wrought by the financial and economic crisis worked themselves out, slowly. The long tail of several multiyear trends — frugal consumers, rampant digitization, innovation in mobile communications, and exploding growth in emerging markets, among them — affected every industry and will continue to influence competition this year.
But 2011 will be different from 2010. The need to respond to the residual effects of the crisis (and the other trends) is forcing many companies to hit the reset button. With renewed discipline, senior leaders are examining their product and service portfolios, business and operating models, process fitness, and cost structure — all through a lens focused more closely on what truly creates value for their companies and their customers. They are figuring out where their companies can excel, based on their distinct capabilities: the things they do better than anyone else. They are using those capabilities to go after opportunities in areas where they know they can win, and scaling back the products and services in areas where they can’t. The best of them have invested, even during their leanest times, to bolster those capabilities that can be capitalized for renewal and growth.
The companies that succeed will also work vigilantly to identify and mitigate the risks — to their supply chains, sources of capital or credit, currency strategies, reputations, regulatory compliance, and so on — that could potentially derail their path forward. And they will proceed with a new, hard-earned understanding that their fortunes — and those of their employees, customers, investors, and other stakeholders — are irrevocably linked with those in other industries and around the globe.
In December 2010, as at the close of previous years, Booz & Company industry teams sent letters to their clients summing up the highlights of the past year and considering what may come in the year ahead. They do this each year in hopes of helping industry leaders clarify their strategies with renewed resolve and vigor. Five of these letters in particular, all excerpted here, aptly illustrate the nature of the reset and how it will affect the larger economic system. Every sector will be affected, but these five — consumer products, telecom, industrials, automotive, and financial services — are at the forefront of major change.
Although the consumer sector fared better than many others in 2010, much of this improvement was due to productivity gains. In 2011, leading consumer products companies will need to focus more on generating real revenue growth by pursuing opportunities enabled by four key consumer trends:
- Frugality with a twist. During the Great Recession, many consumers drastically reduced their spending and cut back on services once deemed essential. For some consumers, these habits are enduring. That said, even frugal consumers seem willing to pay more for so-called high-touch experiences. Demand is broad for products and services with emotional appeal, extending far beyond iPads, iPhones, and other cool gadgets. Consumers still want to indulge themselves occasionally, by springing for a Hermès scarf, a Starbucks Frappuccino, or a weekend at the Ritz-Carlton. They are also seeking greater personalization in products and services; for example, Pandora’s Internet radio service promises to “play only music you’ll love.” Those companies that connect with customers, through simultaneous value and personalization plays, will find ample opportunities to grow.
- An aging and health-conscious population. As the population ages, consumers are increasingly demanding foods, beverages, and other goods that promote health and well-being. New categories are being created in weight management, performance nutrition, and disease support. Sales of healthier foods and beverages are growing quickly, gaining share over more traditional options. Reflecting the importance of this trend, PepsiCo announced in October the creation of a Global Nutrition Group with the goal of tripling its business in “good-for-you” products by 2020. And Nestlé is also creating a new nutrition subsidiary, along with a research group, aimed at developing products that prevent and treat a variety of conditions. Other companies are following rapidly.
- Fragmented media; digital consumers. Leading companies are building marketing functions that can reach consumers no matter where they are located on the path to purchase — at home, on the go, or in the store. The digital marketer’s mission is to simultaneously generate insights about consumers, engage and build lasting relationships with consumers, and drive sales to consumers. This has led to increased spending on nontraditional programs that connect consumers to brands and to other fans of brands; General Mills’s BettyCrocker.com, for instance, has more than 8 million unique visitors per month. Mobile marketing and mobile commerce also are emerging as ways for retailers and brands to engage shoppers on the go. While they are browsing in bricks-and-mortar retail stores, some consumers can already receive competitors’ offers on their smartphones. And Facebook’s new Deals feature delivers targeted promotions to users based on their locations.
- Big emerging markets. Consumer products companies seeking new growth cannot ignore emerging markets. For example, according to the World Bank, GDP growth in China in 2011 is expected to slow to 8.7 percent, compared to 2.9 percent in the United States. In India, GDP growth in 2011 is estimated at 8.7 percent, and income levels are rising rapidly. Consumer companies know that these markets hold rich potential, but capturing this value depends on their ability to navigate through some complex challenges. Competition is fierce from established multinational corporations and focused local companies. Furthermore, these markets are not homogeneous; consumers are in different stages of development both within and across countries.