One of the things which happens in any downturn is that people try lower priced goods and services. They may try private label over brand, or they may shop in stores they normally have not shopped in to try to save some money. What many of these people find is that the “value” they thought they were receiving at a higher price is not really greater value, and in some cases the value proposition for the higher priced goods or services is reinforced.
Some private label goods have consistently gained and kept market share after each downturn. Wal*Mart is quoted as saying they expect to keep virtually all of the new customers they are gaining as trial customers during this downturn even after the economy turns around. On the flip side, Apple iPhone sales are sky high even though it is the highest priced phone of its type.
I was reminded of this phenomenon again in a short article by Rich Karlgaard in the May 25, 2009 issue of Forbes. As you might expect Rich travels a lot and has apparently been used to staying at Ritz-Carlton, Four Seasons and JW Marriott hotels. He notes that he has lately been staying at Residence Inn, Hyatt Place and Holiday Inn Express, with “no complaint.” He points out that these hotels (and I would add Hilton Garden Inn and Marriott Courtyard to that list) do an exemplary job of hitting the business market with exactly what the business traveler needs, no more and no less, at a fair price.
He suggests this is “disruptive technology.” He likes that term because his good friend Clayton Christensen uses it and it is a cool, in term to use. I argue it is not disruptive in any way. It is simply a focus on a segment of customers who need, want and demand certain things that are both more and less than is offered by the luxury hotels he cited. Not disruptive … focused.
As an aside, I suspect Mr. Karlgaard will be back with his “old friends,” Ritz, Four Seasons and JW just as soon as he can, because as good a job as these business class hotels do for him, I suspect he prefers the value he receives from the luxury hotels.