Franchise Update Magazine Issue IV, 2011 | Page 28

Grow Market Lead

Connecting
with
customers
By Jack Mackey

Defying Gravity
Innovating to keep pace with change

I

don’t think I’ll get much of an argument if I try to convince you that
innovation is important. But let’s
take a minute to remind ourselves
why innovation is so critical now.
The customer today is not the customer
you knew five years ago. The year 2010
marked the point when the Millennial
population—the age group from 16 to
34—surpassed both Baby Boomers and
Gen-Xers to assume the coveted mantle
of most significant consumer sector in the
U.S. The sheer size, spending power, and
affluence of the Millennials cannot be
denied. The business challenge is communicating with this technology-savvy,
socially aware audience in a way that
builds brand loyalty and connectedness.
American Millennials: Deciphering the
Enigma Generation, is an in-depth study
conducted by Boston Consulting Group,
Barkley, and SMG. The research, based on
more than 5,000 consumer surveys, presents a fascinating profile of the Millennial
consumer as well as insights showing how
these younger consumers are different.
Bottom line: To capture a chunk of this
newer consumer market, you’ll have to
change. (Those who are interested can get
the report from www.smg.com/research).
Of course it is no surprise that the
economy booms and busts and that generations evolve new buying habits. Business, like life, is cyclical: birth, growth,
maturity, and decline. The storyline is
predictable.
1) Market Introduction: A new product/concept is introduced into the market. Sales and profits are low and demand
must be created.
2) Fast Growth: With success, sales
grow, and with economies of scale, profits
grow as well. But competition develops too.

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Franchiseupdate Iss u e IV, 2 0 1 1

3) Maturity Stage: Growth slows,
sales peak, and then sales flatten. Lots
of competition limits pricing power and
profitability.
4) Decline: Sales and profits decline
from their previous highs. Market forces
work like gravity to restrict growth.
Despite this natural business lifecycle,
“no growth” is simply not an acceptable
option. It is management’s responsibility

Satisfying a
shrinking group
of customers is
a losing hand.
to anticipate these cyclical forces and to
take action to generate sustainable growth.
Sales and profits must be growing for the
brand and the vast majority of franchisees.
Here are three reminders why:
1) Cost of sales and operating costs
go up annually. Even in an era of 2 to 3
percent inflation, the cumulative impact
of cost increases demands continuing
increases in revenue. Cost-cutting may
improve the numbers for a time, but no
franchise shrinks its way to greatness.
2) Managers and employees expect
more every year. This isn’t just a cost issue; it affects morale and retention. The
best people won’t continue to work for
a loser, or even for an also-ran. Winners
want to play for winners. The war for
talent inexorably pushes wages upward.
3) Investors and franchisees demand increasing returns on their
money. Investors move their resources
away from stagnant investments to better
risk-adjusted returns. The same is true
with franchisees, especially big, multi-

unit operators.
To sum it up, a successful franchise
requires continuous growth in sales and
profits. “No growth” means being consigned to the heap of “has-beens” on
the way to “gone.” The only way to
defy gravity and avoid becoming a dying concept in a saturated market is to
get out in front of the business lifecycle
by constantly introducing new offerings
and appealing to new customers. To guide
your innovation initiatives, here are some
customer measures to analyze:
• How many of your target customers are aware of your concept, relative
to the competition?
• How many customers like your brand,
versus how many have tried your brand?
• What percentage of the total purchases in your market category are you
winning compared with other brands?
• What percentage are outright brand
rejecters? What are their reasons? What
are their demographics?
• What is the mix of positive versus
negative comments about your brand
in social media? Are you even in the
conversation?
With Millennials growing in influence,
you must look outside of the four walls
of your business more often. Otherwise,
you could end up like some franchise
companies that have improved their
customer satisfaction measurements over
the last few years, even as their transaction counts steadily declined. This data
anomaly occurs ݡ