Summary
The article sounds an alarm. In response to the economic crisis, CEOs have largely failed to take bold action or propose new ideas. CEOs must develop new business models and ways of doing business.
Analysis
Consider one industry where strategic leadership is needed -- retail.
Retailers face the prospect of a permanent discount mentality from consumers. CEOs, along with their marketing teams, must figure out how to stem the growing consumer expectation of steep discounts. Discounting in the name of revenues now is short-sighted. If this problem is not tackled, consumers will wait until a big sale to buy and margins will fall.
The other side to this equation is how the producers will respond. Some luxury goods makers (e.g., Louis Vuitton) have attempted to avoid cuts in their margins by negotiating special arrangements with department stores. LV's strategy pre-dates the downturn.
CEOs should consider strategies contrary to conventional wisdom. Costco offers high wages and benefits compared to competitors like Wal-Mart. The result: lower employee turnover and employee theft. In addition, Costco imposes a ceiling on the profit margin for its private label products (about 15% compared to 25% for many supermarket private label products). Lower prices attract consumers, who perceive value in Costco private label products. Although Costco's business strategy differs from its competitors, it is precisely this unorthodox strategy that has helped Costco succeed.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
