Report on consumer loyalty card programs in the United States

We are pleased to publish our industry report on consumer loyalty card programs in the United States of America.  This study includes assessment of the market size, trends, growth drivers, and what sponsors and administrators of consumer loyalty programs can do increase engagement.

Our analysis shows that while number of cards in circulation has more than doubled in just 8 years (financial institutions, drugstores, and department stores bombarded Americans with attractive offers increasing signups), nearly 60% of cards are never used.  Our understanding is that the focus on undue focus on increasing reach has resulted in poor service of high-value customers (the airline sector has already started to make amends when they noticed that they were upsetting their big spenders by democratizing the loyalty program).

We recommend that loyalty card issuers conduct a comprehensive analysis of their user base, identify the high-value users, understand their needs, and bend over backwards to serve them.  We conclude that dropping off the occasional users might actually be a better strategic option because it will free up resources to serve the rest.  We also believe that sponsors might consider launching paid loyalty programs on the line of Amazon Prime to appeal to big spenders and then spoil them with delightful service.

Report on American economy, demographics, and homebuilding sector

The emergence of Millennials as the largest first time buyers of homes and injection of foreign money into North American real estate are definitely transforming the homebuilding and construction sectors.  In order to fully appreciate the trends impacting home construction business, so that a long-term market strategy can be developed, we have published a report analyzing macroeconomic drivers, demographic shifts, and other changes in the United States.  Our conclusion is that despite some recent improvements in the business climate for builders, there is a lot of choppiness ahead, primarily because the business models are outdated.  It is very clear that continued reliance on pre-2008 business models is largely responsible for the predicaments of homebuilders, who are struggling despite rising demand for homes.

Trends impacting the homebuilding sector in the United States

As we have written in the past, there are some major changes in the American real estate market.  Obviously, it has to do with the distinct characteristics of the Millennial generation, the largest group of current and future first time home-buyers.  In the report below on the topic of trends and drivers impacting home construction in the United States, we have discussed a range of macro-economic, cultural, and demographic shifts that decision-makers in the housing and building products industry must take into consideration.

State of the Canadian economy and prospects for real estate business

As we discussed previously, the influx of foreign money is disrupting the dynamics of the real estate markets in both United States and Canada, and that is impacting how many Millennials can afford to buy their first home.  In addition, as good as it was that Canada largely avoided the 2008 financial meltdown, the decline in oil prices has brought its economy to a standstill.  The report below provides a snapshot of the Canadian economy and how it will impact the real estate market.

Impact of Foreign Real Estate Buyers on the North American market

There are several forces at work in transforming the real estate business in United States and Canada.  Obviously, the nature of the economic recovery since 2012, flat wages, underemployment of Millennials, limited inventory of single family homes available for sale, and modest household formation are factors in driving selling prices and rents of homes, what is also distorting the market is flood of foreign buyers, specifically from China.  This report from Xinvest Consultants provides a snapshot of the overseas real estate buyers, their rationale for doing so, and how can home-builders, marketers, real estate agents, and other businesses can exploit the opportunity.

Ecolab has business lessons for all types of companies

While advising clients on a range of business issues, it is almost universally helpful to study other companies.  Most of the time I will highlight one or more companies during the presentation itself to build a case for a certain strategy, highlight challenges that another company faced in a similar situation, or warn about following a certain strategy because it did not work out so well.

Obviously, the closer the example is to client's business, the better it is to make the argument.  It also addresses the doubts of those in the conference room who do not fail to point out the industry of the example is so different than theirs.  I, on the other hand, believe that there is no reason to get too hung up on the industry, market, product, or technology, because there are so many similarities in business.  And because I have experience across multiple sectors, it is useful to borrow from other industries.

One company that I have repeatedly used as an excellent is Ecolab, Inc.  There really is nothing bad to say about this company and there is something that every business decision-maker can learn from them.  This is the slide deck I often use with my clients.

Analytical process to identify a growth opportunity for an existing product

We at xInvest Consultants spend bulk of our time analyzing new growth opportunities.  A very typical scenario is a manufacturer that may sell a chemical to automotive, aerospace, consumer electronics, and medical device market.  After research and development, they have now been able to develop a formulation that maybe sold to semiconductor manufacturers.  They believe that their product can replace existing chemicals, lower the cost for their customers, and speed up the process.  However, in order to find out how big the target market is, how is it segmented, what are the trends, what does the competitive landscape looks like, how will competitors react to a new product, and what can be done to successfully penetrate this market, they must do a comprehensive market analysis.

When they come to us with a situation like this, below is the process that we typically use.  

Process used by consultants and market researchers to analyze a new market segment

What I want to emphasize is that clients must do as much research as they can on their own (if possible) but hire an outside consultant (either because they do not have the resources in-house or because an unbiased opinion is a must) at some point.  It is a fact that when you talk to a potential customer, you will not get the answer that we will get.  Since consultants like me work across industries and technologies, we can bring unique perspectives and insights.  In addition, we are trained to look at every observation, conclusion, and comment with a critical eye.  The best approach is the one that combines the internal findings of a firm with that of an independent consultant.

Where do alkaline batteries belong in a portfolio?

For those of us who have spent decades analyzing the alkaline battery business, it has been interesting to watch this struggle.  There is no doubt that alkaline batteries are consumer products but whether they belong in a portfolio with other technologically-unrelated products is debatable.  It wasn't always so, but now that we have some historical information to analyze, we can look at this question with a more critical eye.

The experiment by Duracell

As can be seen in the chart below, Gillette was convinced in Duracell was convinced in 1996 that Duracell fit so nicely with razors.  After all, there were many similarities in how these two products were marketed, distributed, and sold.  We now can look back and conclude that it was a failed strategy.  When Warren Buffet buys a company, it simply means that batteries are best sold all by themselves.  In this failed attempt, though, a lot of shareholder value was destroyed, unless you were a Gillette shareholder in 1996.

History of Duracell batteries

Energizer tries to copy the Duracell model

As I said above, not only was Gillette convinced that alkaline batteries belonged together with razors, others in the industry also believed that it could work.  When a razor company would/could not buy them, Energizer decided to acquire Schick in 2003.  The logic about batteries in a portfolio of consumer package goods was so convincing that Energizer Holdings acquired other personal hygiene products.  Ultimately, as alkaline battery business reached a maturity phase, they realized that it is best to discard them from the portfolio.
History of Energizer bunny company

When will Rayovac realize that it must rethink its portfolio composition?

If the case studies of Duracell and Energizer are an indicator of what is best for a company that owns alkaline batteries in its portfolio, it is time for Rayovac to review its portfolio.  It is continuing to diversify its portfolio with the addition of other packaged goods, but alkaline batteries may drag its growth and profitability.
History of Rayovac

Lessons

As a consultant, I always tell my clients to pay attention to case studies.  Obviously, there are instances in which examples are not available in your own industry, but in many cases, it might be even more useful to look at cases from other sectors.  Generally speaking, mergers destroy shareholder value and complex product portfolios are recipes for disaster, but we can all agree that alkaline batteries are such unique products that they deserve to be left alone.

About:  Jay Dwivedi is a consultant to the battery industry.  He maybe contacted here.

Product mix changes in response to market needs work

I have been closely watching the tumult in the economy, particularly the impact it has had on the Millennial generation.  Their uncertain future and low incomes (I expect this trend to continue and eventually with the aid of technology and seamless flow of labor across border, wages will become uniform globally) have forced companies to completely rethink their business strategies.

Product Portfolio Redesign

An excellent example to study is the housing market.  As property prices have risen sharply while first time home-buyers have not found steady employment that pays more than the minimum wage in service jobs, they have stayed away from buying homes.  While it is less profitable to operate in the starter home segment, D R Horton took the plunge.  While it continued to exploit the trend of rapidly rising income inequality by serving the affluent through its Emerald line of homes (from the fourth quarter of 2013 to the second quarter of 2015, it increased the share of its revenue from these homes from 2% to 6%), it also introduced Express Homes by D.R. Horton.  In less than two years, it redesigned its product portfolio as shown in the following chart.  In the fourth quarter of 2013, only 2% of its homes were designed for the first time home-buyer with a tight budget.  In the latest quarter, that share is 10%. 



While it will be interesting to watch how this plays out if real estate prices fall, but for the period studied, it is clear that D R Horton has also been able to raise the average selling price of these homes.  This has allowed it to grow while serving the less profitable segment.  As business leaders struggle with such decisions, it is important to remember that they must respond to changing market needs and if they conduct thorough analysis before coming up with the optimum product portfolio, they can do so without compromising revenue and profits.

Chart showing the home values for DR Horton


About the author: Jay Dwivedi is a market strategy consultant who helps companies grow their business.  More on him in the about section.