Ears up - Early warnings
Marketer Jake Pearce discovers a way to spot trends before they happenBy Jake Pearce, Auckland Issue 12 / Saturday, 1 January, 2000
Picking the difference between fads and trends has been a lucrative business for many a marketingguru. But it’s spotting the trends before they happen that seems to be where business is creatingmassive, rule-changing opportunities. It has all to do with EWS: early warning signals.
America’s biggest investment bank, Merrill Lynch, ignored the early warning signals when failing totake electronic share trading seriously. Like many companies, it could not distinguish between a fad, atrend and an early warning signal. On June 1 Merrill Lynch made a major u-turn by finally announcingit would offer clients cut-price, online share trading to compete with fast-growing, Internet-savvybrokerages such as Charles Schwab and E*Trade. It had to: one in every three stock trades in theUnited States is now made online.
But major damage had already been done. In April Merrill Lynch was forced to lay-off 4000employees. Schwab, meanwhile, has more than two million active online accounts — more thandouble what it had a year ago — and its market capitalisation is about the same as Merrill Lynch’s,despite having far lower revenue and far fewer clients.
Perhaps Merrill Lynch was relying on traditional market research to keep in touch with the market.Traditional market research won’t help you pick early warning signals. I have my own methodology ofthree tests. An early warning signal will pass tests one and two and sometimes show up through testthree.
First, innovative, leading-edge consumers start to change their behaviour. Second, there is anunderlying rational or emotional reason for this change. Third, innovative companies, initially called“odd”, start reacting to this change.How would we assess Merrill Lynch? If it had been in touch with leading-edge investors it would haveseen them getting into electronic share trading early
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The change in investor behaviour wasempowering cost saving, so had a rational basis. And, yes, boutique electronic share traders startedcropping up.In case you think this is all 20/20 hindsight, consider this example. About five years ago I was luckyenough to work with Pepsico across Europe on a “crazy idea” to add some weird Amazon herb calledguarana to a drink and call it an “energy drink”. (We call it V or Red Bull now.) Early warning signalshad been noted by keeping in touch with innovative, young consumers on an on-going basis, througha variety of unconventional means. We applied the tests to see if they added up to an early warningsignal.
Test one: There was a change in consumer behaviour. Leading-edge, “weird” consumers started todrink water and caffeine pills during the day to get energy. This was an extension of what they did inclubs at night.
Test two: Reason for behaviour? Coffee and tea gave you energy, but they were dehydrating.Test three: Some small “weird” companies started to market drinks with “energy enhancing properties”(for example, Austria’s Red Bull).
At this stage, the number of people was too small for this behaviour to show up in formal statistics.So, if you were relying on reported information, you would have missed this. That’s what makes it an
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