- Being an Alpha (or even just gaining the benefits of “Alpha-ness”) has nothing to do with what market segments you sell or the price you choose to charge.
- It has everything to do with what emotional needs you are satisfying and how you prove that through functional performance.
- When a marketer takes advantage of the opportunities available to fulfill customers’ higher-level emotional and ego needs at a level above that of other competitors, it makes itself capable of driving higher profitability no matter what the economy is doing.
Wal-Mart proves its Alpha strength as economy dips
Wal-Mart , one of the Alpha companies covered in The Alpha Factor, is up in per-store sales about twice as much as its key “discount” competitor both for the year and for the worst two months in retailing so far. It’s not because they have the lowest prices (which they don’t); it’s because they are an Alpha that is positioned exactly right for the current market conditions.
We’ve just gone through two of the scariest economic months possibly since the Great Depression. Businesses are scrambling to the storm cellars. Consumers are zipping up their wallets. And retailers are discounting everything in sight trying to get people in the door. In the meantime, Wal-Mart has quietly gained more in US per-store sales both for the year and for the five weeks ending October 5 than its competitors. Target, arguably its chief rival, is only up half as much in this weak economy. Kohls was down 5.5% in per-store sales for the period.
I’ve already written before about the resilience of some other Alphas as economic fears escalated through the past several months. In recent articles, I described how Mercedes resisted a sales downturn much better than any of the lower- or higher-priced cars in the marketplace, as customers seemed to trade up to the low-end of the Mercedes line in enough volume to overcome the slowdown in the middle of their line. John Deere has also outstripped its category sales growth around the world, despite the ready availability of lower-priced “quality” products.
After reading The Alpha Factor, a lot of people were surprised and a bit confused that I included Wal-Mart in my list of Alpha companies along with many “high-end” companies like Mercedes, John Deere, and Victoria’s Secret. They mistakenly concluded that Alphas are only in the upscale markets, but nothing could be further from the truth.
Using the Alpha Model to become more resilient:
The only trick is that the emotional fulfillment being promised has to be proven out rationally through some functional performance differentiation. As I have discussed many times before, that differentiation does not have to be anything dramatic or really significant, but it must be something the customer can believe and use as justification for their perception. I have seen things as simple as a warranty hand-signed by the president of the company create enough unique confidence to generate amazing increases in profitability ad customer loyalty.
What has made Wal-Mart an Alpha? Wal-Mart has positioned itself as the “smartest” place to buy just about anything. It proves that through having a great selection of things people want to buy (recognizable brands, store brand alternatives, and just enough choices to make a customer feel that they have “shopped”). Its proof is not through having the lowest prices (which it doesn’t), but because it recognized the value of helping people feel smart about how they are spending their money. Making customers feel smart is one of the most frequent and useful elements of Alpha marketing, because it encompasses both the “self-satisfaction” and “personal significance” factors.
Wal-Mart is the first place people think about as the safe haven for shopping, when things start to look tight. Don’t try to convince them that they can get a better deal somewhere else. They have already made up their minds that this is the smartest place to buy, if for no other reason than because other retailers are so terrified of them.
What can we expect from other Alpha companies during the current economic downturn? Certainly many of the Alphas that focused heavily upon more upscale customers will see a slowdown as mid-income customers, who aspired to buy their products, fall away for a while. But we should not see these companies dropping as precipitously in sales and profit as most of their competitors.
We’ve already seen that in the auto industry. Mercedes and BMW, two Alphas mentioned in the book, have not been hurt nearly as badly as have Toyota, Honda, Nissan, Mazda, GM, Ford, and Chrysler.
Some of the Alphas I mention in the book have made dangerous mistakes since the book was completed that have significantly undermined their “Alpha-ness.” Harley-Davidson and Starbucks are two that have caused themselves great harm by forgetting what made them Alphas. They were already in trouble before this downturn even showed itself. It will be interesting to see if any of the residual strength an Alpha inevitably has even after making devastating mistakes might help carry them through this.
What does all this mean to the average business? Start using the Alpha model right now to not only create new growth or limit any potential downturn while others sit back in fear, but also to make yourself significantly stronger on the backside of the downturn.
Couldn’t you just wait until it’s all over? Not if you want to make big jumps in market share and market influence. There is no better time than during a recession to make those big gains, because every one else is doing exactly the wrong thing.