The Growth series will posted on Tuesdays, Wednesdays and Thursdays through the month of October 2011.
One of the growth challenges that many companies, regardless of their industry, may face is growing when the market is capped. There are many ways in which a market can become capped. It can be due to geographic limitations, demographics, economics, availability of money to consumers and absorption rate for the product in the market. For purposes of discussion and planning we will define a capped market as one with less than 10% growth potential available to the entire market.
A great example is the mobile telecommunications industry. Studies and forecasts published in January 2006, predicted that the mobile phone industry was poised for “spectacular growth” over the next four years, upwards of 50%. Take out the emerging markets and growth for the US was predicted by a number of sources to be no more than 7.2% , even into an extended period to 2013. Growth was limited in the US primarily by the absorption rate of the US consumer market for cell phones. By 2006, most people in business had cell phones, our teenagers certainly did and there had been significant penetration into every population group. Think about it, how many people do you know who do not have a cell phone? The new user market is basically a capped market in the US today and in the foreseeable future.
Working with a customer base that was capped the mobile industry created demand and dependence that would require existing users to spend more dollars to bring growth. Smart phones became integrated into our daily lives, often replacing items like day planners, address books, and more. Contracts were created with benefits for extended periods. Loyalty programs including in network long distance was often offered free of charge. Equipment was another component with phones that seemed to have built-in obsolescence, often dying or lacking in needed functionality about every two years and could be enhanced by accessories that were often model specific. Appetites for more features and functionality were driven from many sources. Mergers and acquisitions also constricted market options consolidating growth for the major providers. While this growth has been very good, it too has limitations due to the consumer base. Enter another service that could be sold to not only cell phone consumers but users of many devices, data plans.
I do not know about you, but I have seen evidence of this growth by comparing my bills over the years. The impact taking new phones, accessories, higher and varied types of usage means that if the consumer added up all costs of mobile communications, they are paying 3 to 5 times what they were in 2006. All of this within nearly the same customer base as five years ago.
This example can really be applied to many other industries.
Real Estate - The greater Atlanta real estate market in 2006 was like many markets in the nation with a high percentage of the sales being move-up consumers using equity to move-up, change types of housing and make changes often oriented to lifestyle. Today, that is a capped market due to the downturn in market demand and the fact that a number of foreclosed properties has nearly erased homeowner equity. The forces of this capped market forced a change of consumer base to first time buyers taking advantage of the price drops and investors often from areas outside of the market.
Medical - The medical industry, especially single practitioners and small groups, found limitations on their growth through negotiated insurance contracts which decimated the opportunity for margin growth but did not contain costs. It is also a difficult industry to expand the customer base more than incrementally. Slowly but surely many adopted the practice of semi-annual check-ups and lab work rather than the former standard of annual. Additionally, the staff became more adept in looking for opportunity to sell services including annual vaccinations rather than waiting for the consumer’s request. Additionally, there has been and will continue to be aggregation of practices under a parent company to provide economies of scale that cannot be realized by the individual practitioner.
Industries that provide discretionary expenditure goods and services (for example a Country Club) will find themselves subject to economically capped markets more frequently than necessity markets such as groceries. But even groceries will suffer capped segments of their business in challenging economic times.
So how do you grow in a capped consumer market? First of all make sure that you have done the analysis of your market and define what is capped and with what limitations. Is this a long term or a short term scenario? Once you define the limitations, consider what will potentially drive consumer demand and at what cost. In most cases, the solution will be found in expanded services or creating consumer need. Products can expand the market but have a different cost/benefit ratio than service in most cases. Look for longer term solutions that allow you to take advantage of the ebb and flow of the market while adding to your revenue stream to create true growth in capped markets.