Thursday, May 30, 2013

Values must evolve

Success is built on certain values. For example, Southwest Airlines values being the low-cost provider. Zappos values exceptional customer service. Abercrombie & Fitch values exclusivity. As long as customers pay for those values, the three example companies can continue to be successful. But, customers can be fickle as their values change.

Abercrombie is feeling the heat of value migration this week. They are being raked over the coals in the media for selling only certain sizes and not selling other, larger, sizes. They didn’t care what larger teenage girls thought about them, as long as their skinny customers continued to shop at Abercrombie. They were sticking with their value of exclusivity. But, customers don’t like that value any more. Abercrombie’s skinny customers stopped shopping there and the company is reeling from poor financials. Now, smug statements of pride in their exclusivity have changed to be more inclusive of all teens. It appears the company is going to assess its values and try to repair the damage done by sticking with outdated values too long. (Abercrombie Apologizes: Retailer Meets with Teens to Address Controversy)

Another example of value migration happened to Rubbermaid, the maker of household and commercial storage products. Rubbermaid was known for innovation and quality. It was always near the top of America’s Most Admired Companies, and it enjoyed extreme brand loyalty from the time it launched in Ohio with the red rubber dustpan in the early 1930s until the mid-1990s.

In the mid-1990s, the cost of resin needed to make Rubbermaid’s products increased 80%, and Rubbermaid tried to pass the cost increase along to its largest customer: Walmart. The problem is that Walmart valued low prices over innovation and quality. Rubbermaid could not reduce its prices to meet Walmart’s needs, nor could they meet Walmart’s other demands. Walmart wanted a two-day delivery of orders, to dictate what products Rubbermaid should make, and to dictate how they make products (emphasizing cost over quality). Walmart’s price demands also affected Rubbermaid’s other customers, who wanted the same low prices.
When Rubbermaid could not accommodate Walmart, the retailer reduced Rubbermaid’s shelf space and gave more space to a lower-quality, lower-priced product line. Of course, Rubbermaid could not recoup its costs. Its earnings fell 30% in one year and four years later, Rubbermaid was bought by a lesser-known company.

Rubbermaid could value innovation and quality forever, but it was going out of business because those values were no longer feasible for its customer.

Many industries have seen customers’ values change in recent years. Customers who valued quality now value price. Others who valued speed of delivery now value innovation. Companies have two choices: change to value the same things as their customers or get customers who share their values. Both are reasonable options companies face all the time.
Individuals face the same dilemma, right? One of my friends worked in advertising in Chicago as the lead account person for the RJR account. After a family member suffered through lung cancer, she could not manage the cigarette account any longer. Her values changed, so her job had to change too.

Individuals and companies need to pay attention to their values. As life happens, or the marketplace changes, be aware of value migration and adjust accordingly.

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