‘The customer is king’ is an adage that has been around for many years.
‘The customer is king’ is an adage that has been around for many years. But until now, that is all it has been: an adage. I think this is about to change and we are seeing, for the first time, the emergence of the customer as the truly pivotal element in the consumer economy.
After the Second World War, economic growth was rapid and manufacturers developed quickly, dreaming up a constant stream of goods for increasingly affluent populations. The beginning of the consumer economy we know today was dominated by suppliers. Retailers were the conduits through which suppliers distributed their wares.
The 1960s and 1970s saw tens of thousands of small shops replaced by a smaller number of larger stores. Retailing gradually became the multiple-dominated, national (and increasingly international) trade it is today. This brought economies of scale and buying power that retail management teams were quick to exploit. This shift in the balance of power to retailers is true for most sectors, with some exceptions, such as consumer electronics, where the global brands still hold sway.
Now, as the effects of the Government’s economic measures are beginning to be felt, a new era is emerging with power moving to the customer.
For most of the post-war period the consumer economy has been a seller’s market, where demand was more than enough to absorb supply. This is no longer the case and I do not expect this situation to change in the foreseeable future. Supply exceeds demand: there are too many retailers and many of them have too much capacity. Today we have a buyer’s market and the customer has the power to determine whether a retailer prospers
The growing power of the consumer has been accelerated by technology. The internet and social media are helping consumers exercise their power, giving them a say more quickly and more profoundly. Retailers are behind the curve in understanding the implications of these changes. Retail is being forced to be reactive, and there is a weakness in not being able to anticipate shifts in attitude
This weakness is not due to an insufficient understanding of technology, but of customers. While focus on ecommerce, mobile commerce and social networking are of course essential, these are merely conduits. Technology does not wield the power, it is consumers. And their needs and wants don’t change according to the medium they use.
So, should retailers have used the golden age of maximum margins and high growth to invest in a stronger, closer understanding of their customers? With demand growth having disappeared and margins trending down, it is certainly going to be harder to invest in gaining that closeness now. And will this state of affairs give suppliers more power, given their often narrow, specialised focuses?
We live in uncertain times characterised by more questions than answers. But I suspect that the answer to these questions is yes.