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HomemibusinessThe Hour Glass Economy

The Hour Glass Economy

As we position our business to service the needs of our patients (clients), there are only two options we can choose either to be a premium practice or budget practice. There is no middle ground.

In the last ten years we have seen massive and accelerating technological change, in which consumerism is driving economic growth. Unfortunately this dizzy merrygo- round seems to have a come to a grinding halt with the credit crisis. One has to wonder whether the global system that has evolved will be sustainable.

Today’s economic downturn was predicted by Professor Lester Thurow as early as 20011. In a series of lectures notes, Professor Thurow analyses the American economy, which we now know any minor change has implications globally. He describes ‘Inequality in the American economy’, which has developed since the early 1990s. He argues that inequality is inevitable and will not create social unrest, as this is only caused by race, religion or oppression. Inequality is unfortunately, only of ethical consideration, and is historically rarely taken into account.

Thurow goes on to describe the dot-com revolution and the insane trade deficit, which in 2001 was ten times less than it is today. Thurow questions whether the trade deficit “is this the next global crisis?”

“Over the years, a plethora of high level jobs have been created, as have low level, but few middle level employment opportunities seem to exist – supporting the old cliché, ‘The rich get richer and the poor get poorer’. ”

The Hour Glass Model

At the same time we are seeing the polarisation of the workforce and of spending habits. In mature markets around the world ‘The Hour Glass Economy’ has been predicted by a number of economic analysts2, 3. Over the years, a plethora of high level jobs have been created, as have low level, but few middle level employment opportunities seem to exist – supporting the old cliché, ‘The rich get richer and the poor get poorer’.

The best way to picture the volume of ‘The Hour Glass Economy’ is an image where the top part of the hour glass represents high level income and high level spending, compared to the bottom part (figure 1). The bottom part represents low level income and low level spending. It is obvious then from the hour glass shape that if this model is correct then the volume of income and spending habits exists mainly in the upper and lower levels, with very little volume in the middle ground.

Impact for Optometry

Let us now carefully consider what this might mean for the average optometrist. Optometry is a unique business. We are considered professionals in the consultation room and then retailers of commodity product once the patient hits the dispensing area. It seems that if we are positioning our business to service the needs of our patients (clients), there are really only two stances we can choose. It is either premium (only low volume is required) or cheap (relatively high volume is required).

There seems to be no middle ground and yet many colleagues I speak with consider the middle ground the safest. Choosing the middle ground basically will drive you to the very competitive cheap market, as it is unlikely the premium seeking customer will perceive value in a middle ground positioning.

A recent study commissioned by AMP revealed that the polarised mindset in Australian shopping habits was precisely following the ‘Hour Glass Economy’4. The study involved online, telephone and face to face interviewing of more than 20,000 people. This 21-page document to date it is one of the largest national studies ever conducted on shopping trends. It confirmed what we all know: that shopping for males is a chore, whereas females in general live and breathe it. I am sure the global economy would come to a standstill if women suddenly lost the urge to shop!

More importantly the study revealed some very clear statistics on the Australian shopping mindset. These statistics are invaluable in guiding an independent eye-care practitioner to position their business precisely right. Before we discuss the possible implications of the statistics; let us reveal what they are. Shoppers can be broken down into seven distinct groups:

Shopaholics (13 per cent) – Shop on whim and consider debt a normal part of life. These people are addicted.

Quality seekers (25 per cent) – Value quality over price. They seek out high-end product but always pay off their credit card each month

Traditionalists (22 per cent) – Conservative older group and look for quality over price. Shopping online is a no-no as they are scared of revealing their personal details.

Online geeks (3 per cent) – Opposite of traditionalists, make most of their purchases online. They impulse shop, they bargain buy yet still purchase high end product

Shopaphobes (12 per cent) – Are more concerned about price than quality. These people hate shopping and try to avoid it.

Shopping tolerators (7 per cent) – Unlikely to impulse buy or purchase high end fashion. Similar to ‘Shopaphobes’ but do not exhibit the strong feelings against shopping.

Price sensitive (18 per cent) – Enjoy nailing a bargain yet still feel guilty about shopping. They believe price is the utmost concern.

For me these are amazing figures. Most research that is performed relates to American data. It is easy to argue that it might not accurately apply to Australia, but this study I believe speaks for itself. Clear evidence for the polarised ‘Hour Glass Economy’ in Australia is right here.


Shopaholics, Quality Seekers and Traditionalists

The first three groups ‘Shopaholics, Quality Seekers and Traditionalists’ represent 60 per cent of the shopping market.These people typically are happiest in the premium market.

I am sure that the average eye-care practitioner finds it hard to believe that up to 60 per cent of their customers are premium seekers. Possibly this is because their business is not positioned to retail premium end consultation and product.

The average eye-care practitioner positions their business somewhere in the middle, which the ‘Hour Glass Model’ does not seem to support. Showing a premium seeking customer, middle of the road product, will either drag them down in their purchase to something cheaper or worse still, urge them to leave that business and seek service elsewhere.

The cheaper decision possibly is made because the middle of the road purchase does not have the emotional charge that a premium purchase can have. Therefore why spend the extra money? Funds will only change hands if the customer perceives value.

The bad news once a customer is in the cheap purchasing arena, is that the competition is fierce and we all know that there is always someone that is prepared to sell cheaper. It just does not make any sense for an independent eye-care practitioner to try and compete in the same space as Specsavers or Budget Specs, etc. You will get murdered!

Further analysis of the seven distinct shopping mentalities reveals that the percentage distribution of these groups will probably change over time.

The Online Geek

The group that is under-represented currently is the Online Geek. This group only represents 3 per cent of the shopping public at the moment. Why could this be such a small percentage considering the internet and online shopping carts have been in existence for well over a decade? This again has been answered by Professor Thurow in his lecture notes of 20015.

History clearly shows that with any new industry it will take many years to change what people are already doing. The auto industry as an example started in the beginning of the 1900s with as many as 200 automakers. By 1929 it was only down to around 100. At that stage it would have been impossible to predict which three would have survived in the American market. Now of course all three are bankrupt due to their inertia and their need to embrace climate friendly technologies.

The other challenge that the online market has is sociology. People shop for social interaction and atmosphere, something that the computer cannot currently provide. Having said that, there are certain industries that have been totally revolutionised by the internet: airline ticketing, hotel reservations, movie ticketing and banking, just to name a few, have significantly changed in the last decade because of the internet revolution. Eye services on the other hand are unlikely to be influenced in a great way, especially for the premium seeking customer. The human element for our most precious sense is overwhelming.

Even if the Online Geek group grows from 3 per cent to 13 per cent and all of the customers come from the premium group it still leaves at least 50 per cent of the shopping public that will shop in the top end of the ‘Hour Glass Model’.

In Conclusion

It is imperative that the independent optometrist understands the Hour Glass Economy. One cannot hedge their bets by competing in middle ground.

Volume, which ultimately translates to profit is found only in the premium or discounted markets. If at least 50 per cent of your customers/patients are seeking quality high end product, why would you position your business to attract the other 50 per cent that are seeking low-cost vision solutions? Marketing 101 is quite clear: ‘You can’t be all things to all people’.

It is obvious there are only two positions a business owner can choose. The low-cost part of the equation is saturated with corporate stores so that is not really an option for most independent eye-care practitioners. Which will you choose?

Jim Kokkinakis is a partner in The Eye Practice, a Sydney-based optometry practice specialising in the use of cutting-edge diagnostic technology including Retinal Digital Photography, Optical Coherence Tomography and Corneal Topography. To receive regular business tips, clinical pearls in ocular therapeutics, implementation of computers in an optometric setting and new product reviews subscribe to his monthly complimentary newsletter at www.kokkinakis.com.au.

References

  1. Thurow L., The United States Economy, Lecture Notes March 2001
  2. Douglas S. Massey and Deborah S. Hirst, From Escalator to Hourglass: Changes in the U.S. Occupational Wage Structure 1949-1989, Social Science Research, Volume 27, Issue 1, March 1998, Pages 51-71
  3. Ruth Milkman and Rachel E. Dwyer, Growing Apart, The “New Economy” and Job Polarization in California, 1992-2000. http://www.ssc.wisc.edu/~wright/ MilkmanDwyer.pdf
  4. Directional Insights, and commissioned by AMP Capital Shopping Centres. Shopping: A Consuming Passion, Sunday Telegraph 29th June 2008
  5. Thurow L., The United States Economy, Lecture Notes March 2001