I was always interested in the history of the brands’ emergence, as well as their sudden disappearance from the market. Having studied the history of many companies, I noticed a certain pattern related to the emergence and growth, development, and change, as well as the extinction of once-successful businesses.
It is manifested globally by leading brands and locally by retail on city streets.
This pattern lies in the following:
Thus, the market wheel rotates, crushing more and more successful market leaders in the past.
I thought that over the decades of strategic marketing existence, it should have been observed many times and, the observed should have been framed in a concept. It turns out that back in 1958, Malcolm McNair described a similar concept for retail, as his theory of growth and development of retail institutions.
Like any movement, the “market wheel” moves under the influence of certain forces that make it spin. Let’s say, a change of leader occurs under the influence of three forces:
The reasons for the end of the market era of the old leader are what those things that led him to success, however paradoxical it may sound. A change of leader begins with where it all ends – with the devastating consequences of incompetence or (McNair) decrepit leadership. It is assumed that a new potential leader is a product of aggressive business views. The management of this company is economical, charged entrepreneurs who maximize profits and are little burdened with a base of fixed assets and fixed costs.
However, as a firm becomes a successful leader, it becomes vulnerable because their leaders weaken vigilance and cost control as they age and grow rich. It’s not necessary to believe that all the time, especially at the end of their company’s leadership, they think a lot and thoughtfully about the reasons for their success, read a lot – they are too busy: at first – solving a wide range of problems and accumulating capital, then – scaling and capitalization, later – retention and avoidance of a change in a leadership position.
Leadership implies a significant market share – as a result of high demand, which means large volumes of manufactured and sold products, which require significant production capacity. Following the trend and seeing prospects, the leader is overgrown with excess production capacities, invests in the development or buys new technologies, costs for patents – all this forms his market advantage. Why does the leader buy excess?
Firstly, everything new and promising one is expensive. Secondly, remembering the beginning of their leadership and in the pursuit of “cost leadership,” one buys what makes it possible to provide leadership at low costs. Thirdly, having the financial ability and seeing yourself as a growing leader in the future, buying the new “for growth” – you buy the future.
So, imperceptibly and step by step, the market advantage dissolves. The gradual erosion of this advantage as a result of increasing competition from similar market players is part of the “wheel revolution” (McNair 1958).
It could be argued that not all companies – market leaders began their activities with the advent of low-cost, low-margin, price-oriented firms. Perhaps it is so. But send your gaze farther into the depths of the history of these firms, from the historical moment in which they are today’s leaders or have been recently. All these companies come from dad’s garages and from the experience of working as a simple clerk in a well-known company of those years when the foundations of their innovative leadership were laid, through the forced savings on everything that is possible. And it was formed out of a desire to make ends meet, selling at least something to someone at least for some money.
Recently, I was objected that the vending illustrates well the unfairness of the concept because it has always been an expensive form of distribution. Loughing, I answered the author of the objection that he obviously has little idea of the total costs of the retail outlet (including rent, salaries of sales and office staff, utilities, etc.), with a location somewhere in the passageway of the downtown and how the costs relate for vending and these costs, in terms of the sale of one SKU unit. Reminded him that even having the opportunity and desire to buy a trading place in the city center, it is also difficult to do, due to the lack of space, as it is. Vending was born as an innovative alternative, which reduces trade costs and organizes trade where it is extra-budgetary or simply impossible to do.
As for the objection that many of the modern innovations, such as specialized stores – boutiques, health food stores, convenience food stores are not focused only on low prices, which means that their very presence contradicts the concept. I accept the objection, but I ask you to draw the attention of your opponents to the fact that boutiques and brand salons, showrooms where you can never find a low price are the invention of brands. By themselves, they contradict the very concept of retail trade where “all goods are on one shelf” and “all in one place” is convenient for the buyer who consumes these goods. It means that he also wants to buy them together, with a sufficient choice of them, and does not want to overpay for their purchase.
Boutiques and showrooms are another claw in the ratchet mechanism, which makes consumers believe that it is in these “special” stores that special goods are sold, they have a special relationship, for which the consumer is obliged to pay “especially” expensive.
How can a leader destroy the ruthless “market wheel” and always (or for long) remain a leader?
Michael Porter argued that leadership has one of two strategies: cost leadership and differentiation. The methodological basis of Porter’s theory of competition is the concept of the consumer value chain that he proposed in 1985. He proceeded from the fact that the consumer value of a product is the price that the consumer is willing to pay for it. Well, yes, is ready! It’s not at all the one that can be cut down from the consumer by methods of propaganda and neuro programming, having overestimated it to the limit than by turning the “market wheel” even further – to a change of leader. Let me remind you that Porter studied the competition and has been a consultant to many leading companies, such as Procter&Gamble, Shell, T&T, DuPont. I tend to believe him. And you?377