Today’s jobs report expects somewhere between 12 and 14 percent of Americans to be unemployed meaning that continuing claims would be close to 20 million. The numbers in Europe continue to be equally worrying. Soon the same will be true for developing countries as well but they had already high rates before the pandemic. This will shift demand patterns and government policy for years to come. Will governments and consumer brands start to favor domestic, quality-centric operations over quantity- and convenience-based business models like Instacart and Amazon
Offshoring Came Home To Roost
Let’s put this in a more recent context first. The US shortage of PPE (personal protective equipment) manufacturing capacity to this day is difficult to understand for the average consumer and it will likely remain this way for some time. The president’s announcement to activate the Defense Production Act and bring manufacturing back to US shores (re-shoring) is a natural extension to a broader reaction to globalization and the decades’ long trend of offshoring. Initially, primarily low value-add products and later services transferred to factories and service centers in India, China or the Philippines. Increasingly though, higher-value products and services such as x-ray interpretations by overseas radiologists and engineering design services, went abroad to reduce labor cost, which lifted productivity (labor cost reduction at same output level). With artificial intelligence coming online for the more mundane and highly standardized processes, e.g. self-service using artificial intelligence algorithms, it will follow the offshoring pattern making inroads in increasingly more advanced transactions. We are already seeing the use of it in financial and relationship advice, reservation and eCommerce systems.
Aside from this drive for ongoing productivity improvement to boost profit margins, there is also the constant quest for revenue growth and efficiency. By definition, growth typically means selling a higher quantity of the same product or service, often by acquiring more channels or expanding overseas. To extend growth further, a product may also be reconfigured in multiple variations to attract more customers overall. On the other hand, efficiency comes from reducing the cost inputs to widen margins, which often affects quality. One has to question if the continuous search for efficiency, productivity and growth is really a good measure of societal health, individual content and organizational success?
Globalization 2.0: The Return of Cottage-Industries
Without sounding nostalgic or philosophical; there is something to be said about the quality certain items or services had back then when economies-of-scale and continuous production business models were not the only truth. This is why the best coffee even in Mount Lebanon, PA is not Starbucks
Customization Does Not Equal Personalization
Addressing quality problems with perceived personalization using product customization, which is a quick-and-dirty way to overcome the mass-market stigma, is a commonly used panacea. The harder but more honest route is to create real personalization via small-batch production, which does not need mass-market campaigns.
With offshoring, home delivery and offer customization, we try to use mass-personalization (oxymoron again) to have it both ways; rock bottom, volume-driven prices with a high degree of personalization and convenience. Sprinkle across a digital research and ordering process and you have the perfect mass-marketing machine with a hint of uniqueness. To be clear again, this is not personalization. While there is definitely a proven appeal and market for this model, imagine the pride of not just owning but actually finding a unique, high-quality product with superior customer service. These items don’t always have to be extremely expensive and reserved for the one percent. It could be also the one or two items you own, such as a $80 dress, purchased from a virtual boutique. You could also prefer to buy a few $5 bars of soap from the legion of small manufacturer in Aix-en-Provence online instead of from your local department store Bath & Body Works or Wholefoods. Dare I say that not everything should be about reaching millions of American consumers.
Owning a Legion of Mini-Brands
If it is possible for smaller manufacturers and consumer brands to thrive on such a (lack of) scale, how personalized can a mass-market brand be to achieve this degree of uniqueness without losing money? Does it always have to boil down to treating a consumer as part of a larger target segment? Can large brands court buyers profitably on a super-highly-individualized level? Will investors accept such a strategy? Could operating a hundred, highly unique, small-batch brands without looking for synergies all over be a strategy for success? Will it require thousands or millions of savvy and next-generation ethically-conscious consumers to support such a merchant? How can a holding company justify controlling a brand’s output to maintain quality, especially in an eCommerce world, and not be lured into price and volume surges but to remain a controllable, ethical operation?
In my world of matching business models with technological support structures, this negates the need for big data and real-time offers in lieu of new ways to court and groom relationships using digital and brick-and-mortar channels. It may just be fine not having the convenience to immediately execute a one-click order and expect the shipment to arrive tomorrow and return it; if necessary, via UPS pickup with the explanation of “don’t like it” or “found it somewhere else cheaper”. Like-minded people can cluster in small interest groups on social media moderated by merchants and artisans who sell or help track down these objets d’art. They may also just meet at the local market or section of town reserved for a trade like it still happens in much of the industrialized world.
I believe some consumers will want to extensively search for a product, meaning encountering some delayed gratification from friction in the buying process. It is all about how good he or she really feels afterwards. It is a well-established fact that the hunt often holds more reward than the prize. This is precisely the reason why higher-margin products and services are typically consumed during a trip, when mundane everyday concerns like budgeting and long-term product utility are secondary. My wife and I are just as guilty as the next couple admitting that I have worn my tan suit and she her sari exactly once after we purchased them. But to this day, we continue to tell friends all about the experiential moments finding these treasures on our honeymoon in Mauritius.
Maybe becoming or staying more volume-restrained is the way forward for many luxury brands, or those aspiring to leverage mass-market appeal. Ultimately, how special can you make a customer feel if he or she knows you are selling the same product millions of times over to individuals in the US, France and China? How ethical will your domestic customer feel if it was largely made in China, avoiding “expensive” US labor or “stringent” EU labor laws and potentially be recycled with minimum to no environmental oversight in Africa? TikTok aside, maybe millennials got this one right.