Yesterday, I went to the mall to buy my son a new iPod for his 14th birthday. It was around dinnertime and a beautiful day so maybe that’s why the mall was so empty. Maybe, but I really don’t think that’s the reason.
According to AIM’s recent Internet survey of consumers across the country, the economy is significantly affecting consumer behavior and priorities. 65% of those we surveyed said that current conditions are affecting their spending for the home. Since AIM specializes in the home and home furnishings products, we were especially interested in home spending, but we also found that the economy is affecting personal budgets for food, clothing, and travel as well as for home improvement, furnishings, and entertaining. Next week we will have more of the statistics from our survey on the Blog, but today I wanted to address my trip to the mall because I saw something else at the mall that gave me room for optimism.
As I said, the mall was empty. All except for one store – the one store where I was headed – the Apple store. And it was packed. The customers in the store were mostly young, but not entirely. Some of them were Baby Boomers like me and they were buying computers, iPhones and iPods for themselves (not just for their kids). Apple has created and exploited a business model that other American companies should be emulating. They have concentrated on design, innovation and brand marketing. As a result, they are the acknowledged leader in their product categories. According to Fareed Zakaria’s new book, The Post American World and an Atlantic Monthly article by James Fallows, Apple is operating according to the “Smiley Curve” and they are generating substantial profits. “The ‘Smiley Curve,’ named for the U-shaped smile on the simple 1970’s cartoon of a happy face, illustrates the development of a product, from conception to sale.” At the top left of the curve are the idea, the high level industrial design and the engineering. At the bottom of the curve are manufacturing, assembly and shipping. Rising up on the right side are distribution, marketing, retail sales, service contracts, and sales of parts and accessories. Companies like Apple that concentrate on the high sides of the U are operating where the profits are, while those that concentrate on the low part in the middle have a much lower potential for profit. Like Apple, a lot of US companies are manufacturing overseas in low cost countries, but many of these companies are only concentrating on the low end of the curve. Most of them are not very good at the high sides of the curve – especially design and innovation – where the process begins; nor have they concentrated on brand identity and reinforcement of the brand at retail.
If companies want to make it through this downturn or recession or whatever it is, they are going to have to differentiate themselves by concentrating on both of the high sides of the “Smiley Curve.” They can’t survive by just concentrating on the low middle, by finding a lower cost source of supply. As the cost for fuel and raw materials rises, the cheap sources of supply are drying up. And they can’t succeed by concentrating on only one high side of the curve. Like Apple, to survive and succeed, during not only this period but also in the global marketplace of the future, will require an emphasis on both high sides of that “Smiley Curve.”
Wall Street analysts are concerned that Apple may be vulnerable to slowing consumer spending in the United States because of its stronger presence here than overseas and because many of its products carry a premium price tag. But if the crowds in the stores are any indication, I think they will weather this economic storm just fine. Our AIM consultants report that the Apple stores in
As I said, my local Apple store was full of shoppers yesterday and they, too, were spending money. When I purchased an iPod for my son, I was surprised to be asked for my email so that they could send me my receipt. Of course, I understand that I will now forever be bombarded with emails from Apple. And I was also faintly uncomfortable walking out without a paper receipt, but I couldn’t resist the urge to join the paperless world. I am now a loyal Apple consumer and I might even consider a Mac for my next laptop! (More on this for another day…)