Jo Bowman

First published in Research World January/February 2011

Corporate success in the web-enabled world of consumer choice means turning the classic supply-and-demand model on its head, Cambridge Group consultant Rick Kash says. He tells Jo Bowman this gives smart researchers the chance to get into the driving seat of big business

The idea that business now, in a global and globally connected era, is done differently to what we might call the old days is one that no CEO has failed to grasp. But what few have truly got a handle on is just how radically they need to change the way they work. Rick Kash is founder and CEO of The Cambridge Group, and, alongside Nielsen CEO David Calhoun, has written How Companies Win, which sets out just how very new an approach to products, customers and sales is required. The world is in the throes of the third industrial revolution, they say, with computers and telephony transforming the way we work and live, new markets creating demand, micro lending enabling small-time entrepreneurs to rise to prominence fast, and productivity going up dramatically – over 100% up in the second half of 2010 in the US – as people fight to retain their jobs.

“This is not reengineering,” says Kash. “This is rethinking.” The scale of change taking place is something that many people have had a sense of for some time The pace and depth of change, accelerated by the banking crisis and recession, has taken most people by surprise, he says.

This is cause for great excitement in the business world, he says. While the US has always powered the world economy, with 6% of the global population but generating 26% of global GDP, other markets are on the rise. No longer do we have to await the reawakening of the US economy; markets like India, China, Brazil, Turkey and Malaysia are flexing significant muscle between them. “We’re going to have a much more equal distribution of demand, which will be good for everybody,” Kash says. “The greatest period in economic history will begin four to six years from now.”

What do you want?
Kash and Calhoun’s theory is that even the most successful companies of recent years won’t thrive much longer unless they switch their focus entirely from one centred around the supply end of the supply-demand equation, to the demand side. Naturally, every company says consumers and their evolving needs are already their prime concern. “Not so,” says Kash. “Many products are created and then pushed out to market; too many retailers are stocked with products that for a whole range of reasons aren’t quite right for the kind of shopper they’re attracting. “

So, just as the supply chain was created by coordinating manufacturing with packaging and transport, now companies need to align media, retail and service – which traditionally have viewed the same customer through three different lenses – to create an entirely coordinated demand chain. “The supply chain takes cost out,” says Kash. “The demand chain puts profits in. It’s the business model of the 21st century … it’ll be a growth engine for a long time to come.”

Where’s the demand? That’s the exciting bit, particularly for researchers. Successful mobilisation of the demand chain means fulfilling a consumer ‘need state’, not necessarily a need everyone has, or even one that some people have all the time. Latent need just needs to be identified. Needs can also be created, Kash says –“ just look at how Gatorade developed a need state, and the entire ready-to-go sports drink industry, around the idea that when people are hot and sweaty, they might want something different to drink.”

“Need states are the circumstances that cause someone to want something and take action in its pursuit,” says Kash. “Supply is the total of what the provider does to satisfy customer demand, both physical and emotional.” The supplier provides not just the product itself, but all the supporting elements: the right price, packaging, messaging, distribution, customer service and the brand. The iPhone satisfies users for many reasons that go beyond the handset itself. The packaging is almost jewel-like; the connection with the Apple brand provides a link to a discerning community, and the service and applications ongoing surprises.

Thirsty work
In early 2008, brewer Anheuser-Busch launched Bud Light Lime, an instant hit. By identifying a need state – a growing interest in sweeter alcoholic drinks, particularly at outdoor occasions – the brewer was confident it could attract new Bud drinkers with a slightly sweeter, lime-flavoured product, even though other sweetened beers had failed to get much market traction. The latent need state was not one that most existing beer drinkers had, but there was a young group of consumers who could be enticed into beer with the right flavour. This was good news for Bud, which had worried about cannibalising sales of other Bud products, and especially good was the discovery that when asked what they’d be prepared to pay for the new drink, the price was higher than prices on existing Bud lines.

Google is another great example of a business responding to latent demand, and the rapid success of web pioneers like this have created an intuitive sense among business leaders that there’s a different approach required; now is the time to crystallise that feeling and turn it into strategy. The demand-based economy is, Kash says, “reshaping manufacturers, retailers and the media into a collaborative network that will work to the benefit of all who participate”.

In addition to the traditional “four Ps of business” – product, promotion, place and price – Kash and Calhoun add a fifth: precision, a principle that must be applied at all points in the demand and supply chain. Demand, they say, needs to be understood at such a precise level that the business can supply precisely what is required, and precision in the way the consumer accesses it.

“Mass media is over and done with,” Kash says. “Social media is more precise.” Network TV is being reinvented, he says. What’s needed now is the opposite of mass media and mass retailing. Take the example of Hershey’s chocolates. Thousands of US supermarkets stock a range of Hershey’s products, but scrutiny of their demand chain found that what shoppers in those stores “needed” varied hugely. Boxed chocolates or big family bags? That depends The ability to trim fat and focus on the products that consumers are likely to want then and there is crucial, “the demand chain enables every single retail store to be precise, ensuring that they have the right brands, the right package types, pack types, price, assortment and promotional materials”.

The result is that working capital for the business can be reduced, wastage is down, and the consumer finds what they want. Offering less choice might seem counter-intuitive in the days of the long tail and the anything, anywhere expectations of consumers. Not so, says Kash. “I don’t think people want endless choice, they want perfect choice.”

Crank handles and eureka moments
Determining who wants what, where, when and at what price means segmenting the market, but not as we’ve come to know it, Kash cautions. “Segmentation is like the Model T Ford,” he says. Segmentation based on demography makes erroneous assumptions about people of certain ages wanting the same thing, and misses a wealth of valuable latent demand. Markets should be divided into profit pools, he says – clusters of people who are grouped according to the need or demand they have. When Hershey did this, Kash says, it found that 14% of consumers represented 35% of profits. For electronics retailer Best Buy – which split its consumers into groups like the “deal driven”, the “online aficionado” and the “ambivalent aspirer”, and then developed in-store expertise, demonstration areas and a new stocking system that better catered to these different groups’ needs – 30% of consumers were found to represent 60% of profits.

Developing new ideas that meet latent demand is something too many companies put lots of energy and money behind, waiting for a moment of breakthrough, but too few with real return on investment. Innovation is vital, Kash says, but it takes more perspiration than inspiration.

“Everyone’s looking for the next big idea and says ‘let’s get creative’. It’s the endless search. But it’s really very simple. Successful innovation is defined as identifying unsatisfied demand and then fulfilling it.” That starts with understanding today’s demand and behaviour, then looking ahead, as in the case of Bud’s lime variant. “We often make it too hard,” Kash says. “We make innovation a creative process first. Wrong. It’s strategic. Where’s the unsatisfied demand, whether it’s in sweaters, mops, shampoo or automobiles?”

Many truly innovative ideas have famously failed in product testing but, launched against advice, have gone on to huge success. That doesn’t invalidate the value of testing, Kash says, but rather underlines the need to test on the right group of potential consumers. Again, it’s about precision. When Quaker wanted to launch breakfast oats in the US, he recalls, they tested their offering on American cereal eaters rather than consumers of healthy breakfasts. Unsurprisingly, given that many of the people they tested on were used to sugared cereal, they got a thumbs-down.

Crunching numbers
The importance of reading future demand and testing concepts, packages and pricing means market researchers should be taking a more prominent role in business. Kash says it’s always been completely undervalued, largely because most research has explained past behaviour rather than made predictions, and because it failed to focus on the economic implications of its results – the thing that the c-suite was most interested in. “Profit is in latent and emerging demand,” he says.

In the case of Bud Light Lime, market research showed that the product would sell as well at US $6.99 a pack as at US $5.99, with obvious implications for profits. “Identifying demand should be the province of marketing research but it means you’re going to have to innovate in how you do research, and the only language the corner office understands is economics. If marketing research really wants to profit from the full opportunity that’s available to it, it has to stop looking backwards and reporting what happened in the past and engage by telling the CFO, CMO and CEO: ‘here’s precisely where the latent demand is, here are the opportunities’. “There’s a remarkable opportunity available to research, in a time of great change.”

Research techniques that get to the heart of behaviour and attitude will come to the fore, and when combined with data – shopper records, for instance – and econometric modelling are incredibly powerful. “It enables you to get to the kind of information that the C band really needs … but marketing research in the past has attracted people who’ve felt comfortable reporting numbers as opposed to creating opportunities.”

Innovation in this sector is possible, though, Kash says, and is already happening. “We’ll know that research has really arrived when there’s a Chief Research Officer,” he says. “I don’t believe there’s any business that can’t adjust.”

Rick Kash is founder and chairman of The Cambridge Group

If you’re interested in learning more about consumer insights, ESOMAR is holding its Insights 2011, A New World Order in Shopper Marketing, from the 27th February – 1st March in Brussels. For more information visit our event pages.