Automakers Leading the Shift to a 'Demand-Based Economy'

Automakers Leading the Shift to a 'Demand-Based Economy'

Personal productivity and flat demand in the developed world are driving the switch from a push to a pull model.

In the September issue of IndustryWeek, I wrote about a trend emerging in the automotive industry: the increasing use of social media to ascertain consumer tastes and preferences.

My hypothesis was that the millions of online comments that consumers make about cars and trucks could become a fundamental input in the R&D process for automakers, and sooner than we think. Ford and Kia showed that they're already incorporating online feedback into their product planning, while other automakers confirmed that it's just a matter of time before the industry gets to that point.

Author and consultant Rick Kash, however, asserts that the auto industry's use of social media as an R&D tool is merely a sidebar in a much larger story about supply and demand.

"After 200 to 300 years of a supply-based economy, we are moving to a demand-based economy," says Kash, founder and chairman of the Chicago-based Cambridge Group.

The auto industry is just one of the manufacturing sectors "adding a demand chain," Kash says.

Kash: "Demand is being formed and aggregated in ways that we never would have dreamt possible."
"And what that means is as opposed to starting with supply in the automotive industry and saying, 'Here are the cars we make, it's our best guess, now let's go out and push them,' the entire industry is moving very quickly from a push model to a pull model," he says.

Through social media sites such as Facebook and Twitter, "demand is being formed and aggregated in ways that we never would have dreamt possible," Kash says.

At the same time, automakers and other manufacturers are becoming "expert" at understanding that demand, Kash says, by using new tools that provide deeper insights into customer demographics and spending habits.

As an example, Kash points to Nielsen's Online Campaign Ratings system, which "measures the true audience of an online ad campaign by combining Nielsen panel data with aggregated, anonymous demographic data from online data providers," according to Nielsen.

That kind of insight is enabling automakers to add a fifth "P" to the four P's (product, price, place and promotion) of marketing: precision.

"They're becoming more precise in who they aim the cars to," Kash says. "They've moved from 'Let's build the best possible product that we think they want' to 'Who needs what on this car?'

"So it starts with the pull model, and then they get very precise around everything they do."

For the automotive industry, at least, that's a tectonic shift.

"The entire automotive industry has been run on supply and, if you will, supply chain," Kash says. "So first they create supply and then they go in search of demand to absorb the supply they've already created.

"The flip now is 'What demand is out there that I can make money on, and then how do I align my supply in order to capture that demand?'"

In the past, automotive engineers and designers relied heavily on "a lot of instinct and extraordinary talent," Kash says.

"Now the designers and engineers can really say, 'Oh, is that what the consumer wants?'"

The Internet is one of the key drivers of the shift to a demand-based economy, Kash says. But it's not the only one.

"We're doing it because there's flat to contracting demand in the entire developed world," says Kash, who co-authored "How Companies Win: Profiting from Demand-Driven Business Models No Matter What Business You're in."

"We're doing it because personal productivity and technology means we have oversupply of virtually everything."

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