Consumer Power: A History of Revolutions
Observing the power shifts since the industrial revolution reveals why this age of the consumer is so disruptive.
We start our journey with the industrial revolution. With the beginning of mass production, there was suddenly an abundance of products available. Whoever was able to push product ignited the supply chain and dictated what was bought at what price. This new abundance gave power to the producers and manufacturers.
The power slowly started to shift, however, to the distributors, as railway networks started to grow in the US and Europe.
In the US, where the catalog was invented, People were soon able to select and order products that were then delivered to the train station. The party who could bring the goods to the people and the local stores that would facilitate the transaction, especially in the US, where railway lines were privately owned. The railways were the new way to travel and transport goods and even today, almost every US city has a rich family whose wealth can be traced back to the first railway lines.
Local mom-and-pop stores were the face of retail in the communities. Choices were limited by both shelf space and the amount that shoppers could carry home.
And then this happened:
From the early 20ies to the early post-war era, department stores and proximity stores started shifting the power to the retailers. The automobile contributed to the rise of larger stores, as shoppers were able to increase the volume of items to take home themselves. The stores were deciding what to sell and stock and manufacturers had to fight for space.
The postwar boom started with the retailers having a firm grip on consumer behavior. Over the next decades, they grew and branched off into different store formats, as the population and the disposable income constantly grew.
This was a time of unprecedented growth in volume and traffic of goods. This led to manufacturing and design principles being built around the “average” user.
There were early signs of just how deep this mindset penetrated all institutions. In the 40s, the US Air Force was investigating the high frequency of aviation accidents. They concluded that the planes’ cockpits and helmets were made to fit the average body of a soldier. But in a study subsequent study of thousands of air force pilots, it was found that none of the air force pilots fell within the supposed average dimensions. Mass-produced goods and mass consumerism had led to a one-size-fits-all approach everywhere, but as a methodology to design solutions for people, “average” is a recipe for disaster.
The Brand Revolution
The 50ies saw the invention of a new discipline that would change the power balance in the fight for customers forever: Marketing. Marketers understood that to grow and win against the competition, it wasn’t enough to sell customers a product. In comes the Brand. The new abundance of products and choices required companies to not only meet a customer need but to sell a dream.
At the time, we were led to believe that this was, in fact, a consequence of power shifting to the consumer, given the huge choice of products and brands, but the choice was a superficial one. Push marketing was the name of the game, and the advertisement departments had the same mindset. The Marlborough Man, Barbie, Mr. Clean — customers were categorized with broad strokes and given pretty rudimentary characters to identify with.
The recipe worked until well into the noughties when the real impact of the social aspect of the internet became apparent. It turned out, the internet wasn’t just a new platform for the same brand messages, with some pressures coming from a new level of price transparency; customers were about to take power away from the marketers by becoming the marketers themselves.
The Digital Revolution is not about tech
At every step in the process, disruption and change in how people shop has been driven by both social and technological shifts. This is especially true for the latest big revolution.
The digital revolution has been a technological revolution first, but the effect it had has much more profound implications than simply giving marketers new tools to send their message to customers, it profoundly changed what drives the solutions: customer need and customer experience.
Though power has shifted towards technology players and startups — and every industry had its landscape changed by digital disruption — what makes the most successful players thrive is their relentless focus on the customer and how to create a better experience. Digital disruption was enabled by technology, but the rules of this new world are not made by who owns the technology, but by those who use it.
The abundance of information and the technological might in every customer’s hand (literally) lowered the cost of change. A lot of the hurdles and inconsistencies in the market that retailers could leverage to up margin are now removed or circumvented.
Looking back, every revolution has made scarce resources abundant. Below is a graphic from the book “The New Rules of Retail: Competing in the World’s Toughest Marketplace” (https://g.co/kgs/p3fZjg), which we highly recommend if you’d like to read more about the digital transformation in retail specifically:
What does a world run by consumers look like?
Especially poignant as an example of the new paradigm in a historical context is the marketing revolution. The first appearance of branding and advertisement used a one way channel: Who you are and what you dream of was decided by marketing and advertising people. There was limited engagement back from the customer. Voting with your wallet isn’t what we consider customer research today.
Today’s most successful companies listen to their customers first. They want to know who they are and how they behave, design a solution for their problem and then let the customers do the marketing for them.
A study published in the Journal of Interactive Marketing described the 4 sources of consumer power as follows:
- Demand-based power comes from the consumption and purchase behaviors arising out of the Internet and social media technologies. Consumers have access and choice but are still limited in their ability to create and share information themselves.
- Information-based power comes from the ability to consume and produce content. Product or service information is readily available and — crucially — user-generated-content provides an outlet for self-expression, extending individual reach, and elevating the potential for individual opinion to influence markets.
- Network-based power is the ability to build a personal reputation and influence markets. Every link in the network can add value beyond that of the original content by sharing and organizing content through networks, expand and complete via comments or tagging, or even by repurposing the content completely (for example for memes).
- Crowd-based power resides in the ability to pool, mobilize, and structure resources in ways that benefit both individuals and the groups. They can create together (Unsplash, Wikipedia, SoundCloud), fundraise together (Kickstarter, Indiegogo), outsource tasks (Qmarkets, Amazon Mechanical Turk), sell directly to each other (Etsy), or simply provide support in communities. This gave rise to new business models and marketplaces for platforms that enable self-organization.
Consumer power means that those who understand the value they bring to the consumer and focus on this ruthlessly will have a better chance of being rewarded by the consumer.
This is the focus of many of our programs and workshops: Creating a mindset and teaching tools to innovate the value proposition. Whether a company looks at innovation in its brand, channels, experience, services, products, format, or monetization, they are all layers of an onion, and it all peels down to the question: What is your value proposition to the customer/consumer.
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