Generating breakthrough growth in mature markets: can Southwest Airlines, Starbucks and P&G teach you how to sell more paint?

Coatings World, August, 2005 by Michael J. Lanning

Generating major new, total-market growth in mature markets is rarely pursued, but exceptionally rewarding and profitable. Yet, making it happen, though never trivial, is much more feasible than is widely understood. It can be done by applying a realistic market-focused approach, based on three principles:

* Deeply understand what could motivate end-users to increase usage, and what barriers they face, by studying what they do, not what they say they want;

* Armed with these insights, formulate a real value proposition to tear down the barriers, change consumers' behavior, and unlock dramatic new growth; and

* Then redesign and integrate all business functions and elements (product, brand, pricing, etc.) to singlemindedly, profitably deliver this proposition.

Our experience in architectural consumer coatings indicates potential to dramatically transform this market's size and profitability. But that potential is apparently not generally pursued in this industry, despite a few limited initiatives.

Perhaps coatings players are too busy improving efficiency to seriously pursue market-growth? Given increasing price pressures from big-box retailers, cost improvement is important--but is not often the route to profitable growth (and is often insufficient to even improve profit). In general in the U.S. economy, "Value is migrating, away from the center," from manufacturing to low-cost distribution (e.g. Home Centers, WalMart) and to differentiated solutions (including products and services that give end-users more real value). Architectural coatings must adjust to this change, too. Launching a program of growth-exploration as suggested here can help make such an adjustment, and reorient the industry on a much more profitable trajectory.

HIDDEN POTENTIAL

New total-market growth in a mature consumer market yields great benefits to an industry. It increases profits broadly as a result of better capacity utilization, and reduces competitive intensity; and the innovators who lead the stimulation of growth usually enjoy a disproportionate share of the new profits. But industry players typically conclude that total-market growth is not realistically possible, since the market long-ago reached a mature, slow-growth state.

However, mature markets are often actually underdeveloped. Many consumers who could beneficially consume, or consume far more (like heavy users), do not. Why would usage be underdeveloped? Because even in a mature market, non- or light-users continue to face obstacles to usage: cost of usage; complexity/difficulty/hassle of usage; and low awareness/understanding of the most compelling experiences (often with powerful emotional and social content) that result from usage.

Yet, such potential is typically missed by industry players; especially incumbents. The potential is usually not very obvious, and self-perpetuating myths and misunderstandings (about why and how consumer markets grow dramatically) help keep this potential growth hidden. In the absence of major new usage-stimuli, these patterns of stable usage persist, and take on the look of permanent immutability. The industry's behavior over time only further inhibits market growth: reduced investment in innovation (product and other); increased focus on intermediaries, instead of real end-users; and a price/cost fixation.

But breakthrough growth can often be achieved in these mature markets, by first creatively exploring and discovering insights into end-user behavior, then aggressively moving to proactively stimulate and reshape that behavior. In fact, despite the low-growth mythology in mature markets, numerous proactive, creative players have stimulated just such happy upheavals, providing plenty of reason for architectural coatings players to take heart.

SOME EXAMPLES

Consider the experiences of the frequent business traveler in Texas in the 1970s, which inspired the founders of Southwest Airlines (SWA) to create a great strategic innovation, generating dramatic new growth in a mature market. The industry knew that profit lay only in long-haul flights, not the short-hauls which fed the big hubs. But for travelers wanting to make business trips of 150-300 miles, this offered miserable choices: drive five to six hours, with modest hassle and costs, and make one business meeting; or fly and take three to five hours, perhaps three times the cost, and maybe have two business meetings; or stay home--no travel time, hassle or cost, but also no meeting.

SWA's founders imagined a very different set of short-business-trip experiences, and built an airline designed specifically to profitably deliver them. SWA provided a trip with consistently less total time (door-to-door) than either driving or flying other airlines, while being amused and feeling more liked, rather than hassled and irritated, by front-line staff, all at close to the cost of driving. As trade-offs versus competing airlines, SWA passengers got no assigned seating, meals, interline-ticketing or bag transfer, and usually no convenient connections to more distant cities. But they got much more value, for a 150-300 mile trip, than possible from other airlines, driving or staying home. This value proposition increased total air traffic dramatically, typically 20-50%. And by focusing only on this proposition, eliminating many industry-standard costs not needed for this strategy, SWA was also consistently profitable for 25 years while no other airline came close.