Overproduction, discounting and the hegemony of Big Retail keep our clients awake at night

The single biggest long-term issue facing clients in most industries is overcapacity. In fact, it is difficult to find many cases where the opposite is true. Tequila, perhaps, where it takes seven years to grow the herb. Or high fashion companies like Rolex and Hermes, where historically supply is limited – although in the current fiscal crisis conspicuous consumption is less acceptable. It is also true that commodity-based industries such as oil and steel faced undercapacity issues for some time, being overwhelmed by Indian and Chinese demand. But most sectors are facing problems similar to those in the car and truck industry, where companies can make 80 million units and consumers buy 60 million.

US sales of new passenger vehicles units, m

Source: JD Power Associates, Power Information Network

Average vehicle age before trade-in months

Average vehicle age before trade-in months
Source: JD Power Associates, Power Information Network
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Jan 1-25 only.

Overcapacity issues are particularly difficult to deal with in politically-sensitive industries like automobiles. Governments are not enthusiastic about shutting down capacity and increasing unemployment. They also like to increase capacity by offering inducements to locate new production facilities in development regions. Thus the best thing for the European car industry would probably have been for GM to absorb Fiat’s production capability. But Silvio Berlusconi, Italy’s Prime Minister, could not countenance more unemployment in the Mezzogiorno. The same issue faced the British government with Rover – particularly during an election – resulting in subsidising workers to stay in work during the campaign and it faces the Obama administration with GM and Chrysler today.

The critical issue in the 19th and 20th centuries was how to produce goods and services, and to make sure they reached the consumer. In the 21st century, it is convincing the consumer to purchase products, services or brands in the first place. In such circumstances, differentiation becomes critically important and differentiation is what our business is about.

Historically, maintaining technical or product differences was easier. Today, keeping a technological lead is difficult. Product life cycles are being shortened and brand cycles lengthened. Again, an example from the car industry. Less than a decade ago it took, perhaps, five years to design, produce and market a car. Today, it can be done in 18 months. Facing faster and more aggressive Japanese, South Korean and German manufacturers, the Americans have been obliged to play catch-up. In future, Chinese and Indian manufacturers will stimulate further response.

So intangible differentiation is becoming more important. Psychological, lifestyle and emotional differences are significant. The suit or dress you wear, the car you drive, the holidays you take, how you spend your leisure time – all say a lot about your personality and preferences. Some say such intangible appeal is immoral or at least unsavoury. Preying on people’s vulnerabilities, it is argued, is unethical. Not so. We believe that fulfilling people’s desires or dreams is almost always justifiable and satisfying for the consumer – and it is a key role for the advertising and marketing services industry.