• January 7, 2010
  • By Anirudh Kulkarni, founder and managing principal, Customer Value Partners

Challenge Your “Market Permission”

Unsurprisingly, many corporations seeking to weather the challenging economic climate are using price as a mechanism to keep sales afloat and maintain market share. But for corporations with respected and firmly entrenched brands, recession-driven changes in the type of products offered — and the prices charged for those products — do not automatically result in improved sales. This is due to the fact that corporations employing this strategy are attempting to challenge their existing market permission — a consumer behavior theory whereby individuals link companies with particular types of product and service offerings. On top of that, they are attempting to change the relationship established between the firm and the customer. 

Fast-food chain McDonald's, for example, has earned market permission to provide quick and cheap family-friendly meals. Any decisions to deviate from their existing market permission by, say, adding higher-priced items to the menu would have to be earned because they conflict with the offerings consumers associate with the brand.

Any way you slice it, the recession is causing many corporations to rethink whether their market permission is optimally suited for a soft economy, thus altering their business strategy in an attempt to change it. Especially in a difficult economy, corporations such as Outback Steakhouse challenge their market permission to deliver mid-priced, high-quality cuisine with menu changes that now include more than a dozen meals priced for under $15. In response to the recessionary climate, firms weighing changes in business strategy or pricing should consider three approaches:

1. Leverage Market Conditions to Acquire New Permissions

For years, high-end coffee drinks have been overwhelmingly synonymous with one brand — Starbucks. Similarly, the brand most often associated with inexpensive fast food has been McDonald's. So how does the fast-food king gain permission to attack the high-end coffee market?

McDonald's saw consumers adjust daily spending habits as a result of the recessionary conditions and recognized an opportunity. With consumers scrutinizing the $4 latte, McDonald's acquired new market permission to take Starbucks on at its own game. McDonald's first tested the waters by introducing the McCafé concept, then introduced the entire line of McCafé drinks in multiple test markets.

The launch has been so successful that it has expanded internationally. Analysts are expecting McDonald's new foray into the coffee market to bring in an additional $1 billion annually by 2010.

2. Acquire, Partner, or Launch a New Brand that Provides Permission

Strategic mergers, acquisitions, and partnerships are not only utilized to provide ready access to new markets, but can also provide a corporation with new market permissions that would be hard to achieve organically. Clothing retailer Dress Barn's long-held market permission was to provide consumers with low-priced clothing, but its target market had always been older, professional women. In June, the company acquired Tween Brands, which also offers inexpensive clothing but appeals to primarily preteen consumers — providing Dress Barn with the potential to extend its brand permission.

Toyota avoids the brand perception problem others may face when lowering prices in a recession by creating new brands that tap into new market spaces. Leveraging its earned reputation for high quality, Toyota extended that positive recognition — with little explicit connection ever made — to both its Lexus brand, which allowed the company to go upscale, and Scion, which enabled the company to go down-market. In this way, Toyota acquires new permissions without having to sacrifice old ones, all while retaining the ability to optimize its resources.

3. Change Categories Entirely

While it may test the memory of many consumers, there was a time when purchasing music meant a trip to Tower Records, Sam Goody's, or Virgin Megastore.

Even as the market evolved and consumers began downloading CD music onto MP3 players, few projected Apple as a viable entrant in the music retail business. Now, of course, the corporate brand — further delineated by its iTunes and iPod labels — has become synonymous with music downloads. Apple changed the category entirely by moving consumers' purchase behavior away from physical media to digital. And in doing so, it killed off the traditional music store and defined a new category around digital music.

As of January 2009, iTunes had sold over six billion songs, whereas Tower Records was finally forced to shut its doors. This economic climate has weakened even some of the strongest brands, giving other unexpected players the opportunity to acquire new market permission by completely changing the consumer perceptions of the category.

Ultimately, the most important factor to consider when looking at these or any other market permission strategies is to truly understand your audience, test the waters, and readjust your plan as you read the initial market results. Agility always reigns supreme.

About the Author

Anirudh Kulkarni (akulkarni@cvpcorp.com) is founder and managing principal of Customer Value Partners, a customer lifecycle management consulting firm.

Please note that the Viewpoints listed in CRM magazine and appearing on destinationCRM.com represent the perspective of the authors, and not necessarily those of the magazine or its editors. You may leave a public comment regarding this article by clicking on "Comments" at the top.
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