Pedal to the Metal? What have drivers and accelerators to do with Marketing?

Derived demand | Drivers | The accelerator principle | Summary | Feedback

There are many ways you can examine the nature of demand which may give insight into your chosen market. Perhaps take an economic or utilitarian view, perhaps you might review the benefits customers are buying or the market structure and your position within it. In some cases, intangible values such as feelings of style or association or risk are attached to a brand with sometimes discernable effect on demand.

Many over 30 year olds will recall the time when "you would never have been fired for choosing IBM". There may be evidence somewhere establishing whether that particular communications strategy succeeded in slowing the emergence of the upstart PC clone industry or enhancing IBM's relative commercial position at that particular time.

The marketing communications industry works hard to associate values to offerings and embed them in the minds of individuals in a market. Often this is most done when tangible difference in the utility provided by various offerings is minimal. For the example of different makes of Cars or various fashion items of the same type, the basic utility provided by one item or another is very similar but the perceived values attached to each item can differ greatly.

At a simpler level we should not forget that there are some basic drivers behind many market places driving the demand for a generic type of offering. Understanding and perhaps positioning yourself to benefit from their effects can offer high sales growth.

Derived demand

You could argue that all demand is derived from the need to get some benefit or other.

Thus, the demand for Cars is derived from the basic demand or need for local transport, the demand for Cola drinks is derived initially from the human bodies basic daily liquid needs, the demand for mobile phones derived from a basic need to communicate.

The basic need is not what makes the market grow or shrink, for that we have to search about more, what is driving demand to a particular generic technology, or perhaps to a particular brand, company or type of product. I am going to call such market shaping influences "drivers".

What are the drivers?

How often is there a dominant force "driving" people toward a particular solution to their needs? The application of technology or invention can be an important driver and, since industrialisation, has often been the dominant driver in many markets.

It was the application of technology, or sustained innovation, that over a period of time firmly established Cars rather than Horses as the prime method of local transport in most of the western world. The continual advance of technology has been responsible for the move from the initial post system to land line pulse dialled telephones then partly to include analogue and recently to digital mobile phones, from the Telex to the fax machine, from passenger liner to passenger aircraft for international travel, the list is endless.

Legislation: lawmakers incessantly create and modify markets driving players in them toward one solution or another.

Consider the mandatory motorcycle helmet law which created growth in demand for these items, British Tax concessions on pension savings which effectively handed a subsidy to the city of London investment community, a forthcoming European Directive on recycling Mercury, which among other things is contained in light tubes and according to Mary Fagan's article in the Sunday Telegraph (April 8 2001) may drive demand to a particular UK company "Mercury Recycling".

Association: changes in the demand for Cars will effect change in the demand for Car Tyres or Car wash machinery, petrol or Oil.

While association is not necessarily a tangible force and is sometimes not so direct, associating an item or company can have powerful effect. Consider the results of companies whose image has been non-green or anti-animal in these so called ethical times. Association with a rising star can always bring reward while picking the wrong individual brings punishment.

Hollywood is expert at producing and marketing films, for which perhaps the base demand comes from our need to be entertained. However individual films gain popularity by association, for example when produced by the director that made film XYZ, written by the author of film ABC, with famous Actor or Actress "so and so" whose last film was a block buster. The actors last film, the directors last film and the writers last film could be three different events altogether but still credibility by association will be established in the minds of cinema goers.

There may be any number of other potential drivers, environment (climate), changing social structure and practice, business practice, the ageing of the population, changing work patterns.

If you can provide new offerings that are aligned with emerging generic drivers, you will be able to achieve sales growth within a growing market which is preferable to operating within a stable or stagnant market because you do not have to steal each additional sale from a defensive competitor.

You could therefore describe chasing new growth drivers as a more intelligent way to compete than waging head to head battles for market share with your current competitors in existing but mature markets.

The accelerator principle

As far as I in my simpletons terms understand it, the accelerator principle is working when a given increase in demand in one market causes a greater increase in demand in another.

In the recent boom in mobile phone sales there was a corresponding demand for electronic components. No accelerator there.

Consider however the demand for things required to make or use electronic components.

Assuming a steady state demand the demand for equipment to make or integrate electronic components is restricted by capital replacement schedules of existing factories. I am talking about things like clean rooms, pick and place machines, flow solder, pcb reflow machinery, test equipment and the suchlike.

If demand for electronic components grows faster than anticipated, factories will reach full capacity.

Demand will then exceed supply and people will start to commission new factories. Now there is additional demand for machinery to completely equip new capacity. The old factories still continue to require machinery to be upgraded but the expansion in demand for electronic components has created a very large growth in the demand for production machinery.

Sub contract manufacturing provides another example and one where mobile phones recently provided examples of this accelerator effect.

When existing producers grow their output until they reach 100% capacity, they are faced with a "make or buy" choice. Do they invest in new capacity to make themselves or contract out additional demand to others. Especially if they are unsure growth will continue many will subcontract their excess demand.

This does not just apply to electronics but food and clothing and almost any other market. The accelerator principle is working in favour of the subcontractors in this instance, as it worked in favour of the machinery producers in the case of electronic components.

Summary

Understanding the drivers affecting your market today, and the demand drivers for particular offerings, will allow you to predict results in the future and take action in advance.

Drivers and accelerators can potentially provide large sales growth but as the car analogy so elegantly allows me to say ... beware and be aware, that cars have reverse gears so forward movement can reverse just as quickly.

Author: Mark Abraham mark@sticky-marketing.net 07 April 2001

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