Avoiding the Death Spiral (Part 1)
The tough times are upon us, and no one knows with even amodicum of certainty how long they will last. Given the multiple, overlapping, interlocking ways in whichthe economy melted down, any hope of a quick fix seems pointless. Worst of all is the fact that those incharge seem to think that simply throwing a big pile (US$7 trillion+) of moneyat the problem will effect a cure. Frankly, to my untrained economic eye, this borders on the psychotic. Too many fundamental problemsremain. But I digress.
The point of this post is to continue our discussion of whatmatters most in tough times. Consider the retail industry: recent news stories suggest that unsoldinventories are so bloated and the prospects for moving merchandise so bleakthat some major retailers are simply redirecting inbound shipments straight tothe liquidators. The goods won’teven make it to the retail shelf!
Instead, every retailer worth his or her salt is bombardingcustomers with coupons and offers of goods at massive discounts—discounts sosevere that every unit sold is going at a loss. This might generate some desperately needed short-term cashflow, but in truth it just winds retail tighter into the death spiral it hassought to escape for the past couple of decades.
Federated, May (r.i.p.), Nordstrom and others have trainedcustomers to expect everything at a discount. One only has to wait a week or two and, sure enough, alongwill come a one-day sale and almost everything is 20% off. Who, other than someone in extremedesperation on the road—I’ve been there—would purchase Jockey underwear or GoldToe socks at full price? Both willbe on sale within a few days/weeks. And this was before the current crisis.
Crazy as it seems for a whole industry to wind itself upwith this sort of doomed business model, what we see now as Circuit City,Talbot’s and J. Jill prepare for extinction is an acceleration of theprocess. Even deeper discountstoday, and, everyone assumes, massive ones tomorrow.
What’s my point, especially for those in the nonprofitindustry? Simple: retail’smistake, like that made by American car manufacturers, was to assume theproblem was inherently one of marketing and merchandising. Instead, the problem was a human one:customer loyalty (or the lack thereof).
Nonprofits should avoid the marketing/merchandising frameand, right from the start, couch discussions of how best to respond to theeconomy in loyalty terms. Whilethe time to build fanatically loyal customers was clearly a while back, all isnot lost at this point. My nextpost will talk about why and what nonprofits can do now.