Monday, March 03, 2008

The New Substance Economy

I have been off with the flu for the more than a week which gives you plenty of time to think off the beaten track. The notion that has been occuping most of my thoughts about the future of branded companies is the revolutionary affect that climate change will have on business. To try to think ahead about what the innovations are that will offer the win wins that are needed i.e. a way to do business in a sustainable way which in turn will offer a commercial advantage that will cause that company to make money and grow its goodness.

This is a big ask when so many of the ambitions of business seem to be set in opposition sustainability. The most obvious of these is the desire for producers to sell more and more of their produce with the ambition to dominate the market that they are in and with a view to opening up new markets in which to dominate in the future. There are obvious ways to make the making of things far more sustainable – it must be possible if a raw material intensive company like Innocent or M&S can make claims to be carbon neutral. If these kinds of companies do well then the model that says make more and more stuff is fine if that new product is taking share away from other products that do not work in a sustainable way. But generally this core need to shift ever greater volume is in some industries going to be challenged.  If people start to question simply consuming and disposing of things quickly and cheaply (as we must expect they will,) and also the regulations and trading efficiencies of being a company that relies on this business model become harder (as we expect they must,) then you have two very clear limitations on this way of doing business which could sweep in like wild fire in the next ten years or so. The internet was a revolution but initially it was seen simply as way to sell more and more products with greater efficiency – an extension of the normal day to day practices into a new channel. It was nothing when compared to this notion that even the basic way that most companies make money is being brought into question... that goes right to the core. So what can be done?

In the last few decades big consumer branded companies have shifted the focus away from the manufacturing side of their business which they now buy in from outside suppliers ‘just in time,’ and by the cheapest and easiest means possible, while they focus attention on marketing. This means understanding markets and consumer desires as well as trying to physically manufacture these things to create markets for those outsourced products. So if you go one step further and actually remove the product itself from the equation can it still be made to balance? Common sense would say not but if you think about it the idea of a company that focuses on services and consumer experiences rather than selling physical products is very normal.   It is also very much easier to make it work against the context of higher cost and more restricted production environments and lower consumer demand for carbon intensive products.

The idea of the experience economy is not new and there have been some things written already about the potential value of using this approach as a response to climate change, but it has not been fully adapted and expanded into this area. Nor has a framework been created to show companies how to seek out and monetise these new forms of value. There is strong research that shows that the purchase cycle of shiny new products makes people far less happy (even unhappy,) when held up against experience driven purchases. Branded companies who unlock this new type of value will by this account succeed in making their consumers more happy than those that rely on physical material based models which is in itself a compelling consumer based reason why these transitions should be successful now even before the strongest effect of a quickening climate change economy take hold.

Scoping this opportunity could be an important step to create a path to smooth this transition from the old carbon intensive physical kind of value creation to these new kinds of economic substance. I am going to have a think about what this framework would look like but at the moment it is fair to say that there are a couple of basic principles that I think will apply.

-The brand marketing function will need to take a lead in their development and execution
-They will be people centric and based on all the different types of cultural value that people can experience

But I’m sure there are more… Anyhow the ‘NEW SUBSTANCE ECONOMY’ seemed like a good name for this new kind of value.

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