The time when we could blame everything on the negative effects of the economic crisis is over. Markets went through a complete transformation since 2008, and experts are talking about a new international crisis approaching. But markets have normalised, and we can say that there are ‘peacetime conditions’ in effect. If we had to summarise the most significant effect of the past decade on the business world, from a business development perspective, we would say that it is undoubtedly the emergence of the real ‘premium’ and real ‘mass’ products.
So, they have developed, but where?
There have always been premium and mass products, both internationally and in Hungary. This is not where the change should be measured. But what we couldn’t say about our country (or others for that matter) is that consumers had truly premium needs. Before anyone would start arguing this business development fact, I am not trying to say that there was no demand in Hungary for good or high-quality products and services. In fact, saying such a thing would be downright silly. The essence of the changes happening in the Hungarian consumer society lies exactly in this attitude. If a product looks appealing, it is considered premium. If a service is unique, that’s premium too. And if a given consumer product is bought by a lot of people, because its customer feedback is good, then that’s the epitome of premium. I have held several hundred strategic workshops on this subject, and to the participating managers, the biggest shock always came when we showed them what is ‘true premium’ in the traditional sense, and that there was no real demand for it in Hungary until the economic crisis. And the area where true premium has emerged is none other than the purchasing decision-making mechanism of Hungarian households, and this phenomenon has presented itself as a rather characteristic factor. Certainly, if there is consumer demand for premium products and services, there will be premium products and services. And these obviously have to be produced by premium companies, which have to work with decision-makers with a premium way of thinking. It is as simple as that, at least in theory. But in practice, it is a huge challenge for the average Hungarian manager to face these incomprehensible situations and unfamiliar decision-making mechanisms that couldn’t be farther away from their world, and with which they are not only unable to identify, but they outright reject. But the fact remains: the success of the domestic companies of a given country in the past ten years has depended on their understanding of the real role of premium, and on how much they can represent and implement it.
Premium means different things to different people. The solutions of the business world and the keys to the success of domestic companies lies in this, too. Even just looking at the four main personality types – and not considering the subtypes – we already have four different definitions for premium. For the Ruler, something is deemed to be premium if it helps express and project status, position, and financial standing. Since they are brand-oriented and tend to surround themselves with products and services of an unquestionably high image value, premium means well-established brands in their interpretation. Rulers will only consider brands that their colleagues, friends, and business partners know cost an arm and a leg. Sometimes one cannot help but smile when seeing veteran businesspeople thinking along the lines of ‘just don’t let it be too expensive’ at the launch of a given premium product. See, for the Ruler, whatever is affordable for a lot of people is but a mass product, and a mass product simply cannot be premium! I could bring up several successful business development projects from my own practice where a declining business could be saved almost entirely by significantly raising the price of an already existing product of the company. Of course, you will have to add the right looks to fit the price: design is critical. A Ruler Premium product has to be at the top of its class on the market in this regard. And last but not least, you will have to attach the right services to the given product—that certain VIP service. The majority of local companies fail at this point – as a Ruler takes ‘customer service’ literally, expecting a crowd of servants waiting to fulfil his every wish – after all, he has brought his money to that company. Is it a pleasant attitude? Well, we could argue about that. I am not a Ruler, so I don’t identify with their way of thinking, but I can accept it, or even find it appealing. Still, I usually advise my clients that if they want to build a successful business in Europe, and they don’t want to enter the quantity and price competition in which beating multinational companies can be a hard nut to crack, to ignore their personal feelings about the Ruler attitude, and build their business on it. Why do I teach this? Although representatives of this personality type are just under 10% of all consumers, and this percentage could be slightly different in various countries, this 10% is followed by a substantial number of Supporters, the group that constitutes about 70% of consumers. And if this is still not enough to convince you, keep in mind that it was the Ruler types who could raise their income level and purchasing power the most since the economic crisis. It is evident from the latest consumer-level research conducted in Hungary and other European countries that this brand-oriented group has created a new consumer group that we like to call the ‘Ruler Premium’. This group now gives 20% of the total purchasing power in the market. Just have a look at the sales statistics for luxury cars and other luxury brands. The significant progress apparent in this area is not an accident!
If the trends mentioned above wouldn’t be enough to drive the economy towards the Ruler Premium at maximum speed, let’s add a good deal of generational effect to the equation! One of the significant factors, which is considered an ‘inappropriate topic’ in the business world, is the purification of the economy. To put it bluntly: even if there were people with a Ruler Premium approach in the business world before, in the post-communist era of the country, only very few displayed their ‘tendencies’ openly. The reason for that is very simple. The so-called Supporter Generation – born between 1949-1960 – and the Expert Generation – born between 1961-1972 – were not necessarily the most loyal subjects of the tax system. I am not going to go into details; I trust the reader to figure out why a businessperson with any sense wouldn’t want to ride around the city in a luxury car when they were busy avoiding taxes. Generalisations are dangerous of course, but there is a reason why local enterprises got amnesty in Hungary, and more than once. Tax control works incomparably better today, and the now-emerging Individual Generation – born between 1973-1984 – do not like to take such risks anyway. At least those with long-term visions for their companies would never do that. And the managers on top of the most successful businesses are increasingly against ‘shady’ solutions. This means that as consumers, they proudly display the products and services as the fruits and symbols of their success. Ten years ago, it would have been unimaginable to see Maseratis and Jaguars roaming around in the traditional business world. But today, a company owner will gladly go for the premium experience, even if it is through a favourable leasing plan.
The other ‘generational push’ comes from the Ruler Generation itself – born between 1985-1996. Even their name tells us that the world of true premium is what they aim for and where they feel at home. Turning the statement around a little: they don’t regard anyone successful unless they present some Ruler Premium ‘garnishing’. And before we would make the assumption that they are all just young people full of themselves, let me add that there is a substantial amount of truth in this way of thinking they have! Today, a truly successful manager will not only be successful ‘inwardly’, but can show and communicate his achievements to the world. This is not at all about a ‘juicy personal PR’, but a healthy amount of self-confidence. This is usually not the forte of Europeans, and Central and Eastern European nations are lightyears behind overseas managers in this regard. To be fair, we didn’t learn this back in the day, in fact, it was something to be avoided at all costs. It seems that for this generation, appearances maintain the demand for true premium on the market. It is a kind of spiral in which the economic crisis first raised Ruler-type managers to the top of the solvency list of consumer society, and then the generational effects have ensured that these households stay on the top of this list.
We have a long way to go
So, the formula is simple: if we want to develop our business successfully, we have to move in the direction of premium. It is true! Looking at the business development projects of Mentors & Partners Group in the past 10 years, it is obvious that we have shifted Hungarian companies in the direction of providing for premium consumer needs with the help of a very simple formula, and they didn’t have to wait long for success to come. And the premium market finally made it possible for the dreams of small enterprises to come true: they gained a significant advantage in the competition against multinational companies. How? Well, the Ruler Premium cannot be a mass product by definition! And if a product is bought by many, it is considered to be a mass product. Multinational companies almost always aim for big numbers and big sales. So, no matter how high-quality their products or services are, they will never be premium in the eyes of Rulers. Of course, there are excellent examples to the contrary, but those always involve some brilliant strategies – see in the cases of Apple, Lexus, or Rolex, all of which are the exceptions that prove the rule. And this exception requires a perfect market strategy to work. But if it is that simple to bring a business to success, why are there still so many unsuccessful, failed business endeavours? The answer is simple: it is one thing to decide to shift one’s business in the direction of Ruler Premium. But the consistent implementation of this strategy is an entirely different story! There are some personality types that are inherently incapable of making this shift by themselves. In fact, only Rulers can do this effectively! They understand the decision-making codes, the motivations, details, and attached nuances. Sheer determination is not sufficient here! Rulers have to be included in the implementation process. The world of fashion is a perfect example of this. I am sure everyone is familiar with the situation when someone goes into an exclusive shop of a prestigious brand as, God forbid, a tourist, and has to face the situation when they are all but signalling that he is not welcome there, only because the suit he is wearing is not from the latest collection. Which could easily be hanging quietly at home, it’s just that our protagonist decided not to bring it with him on vacation. It is like this when sellers only ‘put on’ a Ruler mask, but their original personalities couldn’t be farther from it. This will turn the whole situation into a pointless and unpleasant display of power, even though a manager of such calibre will have more spending money in his pocket as a tourist than several months’ worth of wages of the idling shop assistant, and at the end of the situation the Ruler tourist will come out on top anyway. The success of premium businesses hinges on providing truly premium customer service. Of course, I could list a few big brands where the above situation could never happen; I experienced it first-hand myself in seven or eight international metropolises. This is the biggest challenge in Hungary too: how can a non-Ruler company owner or leader get a proper foothold in a premium market dominated by Rulers? This is the biggest task from a strategic perspective too, which of course has its set solutions. The sad fact is that on a domestic level the situation has not improved a bit in this regard. Indeed, it is becoming worse. Despite the many failed premium-oriented endeavours, owners still believe that the problem is that there isn’t adequate demand for premium. Unfortunately, this is just a sad excuse and a case of self-deception. According to the official statistics of Hungary, it is not exceptional for households to have $1,000,000–1,300,000 total wealth. You will have to admit that a household of such financial background can buy any domestic premium product. And if they are buying someone else’s product instead of ours, then the problem is on our side!
The dark and the light sides
Decision magazine is looking into economic sectors in which this social bifurcation, the division of the market into premium and mass products, had a significant impact on consumer needs and solvency. Which one is farther ahead now in this regard? The IT, the insurance, or the pharmaceutical sector? There is no point in comparing these industries. First, because they have such different identities, and also because every sector has its ‘idlers’ as well as its ‘refreshing exceptions’, striding ahead in seven-league boots. What is common among these sectors is that they are all talking a lot about shifting in the direction of premium. In fact, they are investing substantial resources and energy in these developments. Unfortunately, it is also evident that these are often just empty slogans that are not followed by actual developments. In most cases, even the people responsible for the implementation process are not the right ones. They expect to get the solution from people who were successful in the past, but that is impossible, as we are talking about a trend that didn’t even exist ten years ago, you could only read about it in books at best, if you could actually get such a book! The other fundamental issue is that leaders in the upper management spend more and more of their energies on keeping their hard-earned positions, and it makes it very difficult to effect drastic changes. A third difficulty is that the multinational company environment did not tolerate the Ruler type before the crisis, and even now they only bring them to the company because the conditions force them to – which means that their results will be forced, too. When will large corporations realise that they can also turn in the direction of premium? That premium cannot be handled the same way as their current mass production? That the large-quantity sales done by multinational companies is ‘mass’ to begin with, and not premium? Why is the set-up of Apple or Toyota-Lexus successful in both areas? This is the big question these three sectors will have to answer in the upcoming years! One thing is certain: the demand for premium is a given. It doesn’t need to be generated, but simply provided for, and for that, we have to accept the fact that we will need to include people in the organisation who will ‘stir up’ the quiet and peaceful environment of yesteryear. I know, a lot of people say that they have already started in this direction; indeed, many think that they have already reached their destination. And they believe that while managing sales from the very same office in the same building, in the same marketing department with the same sales managers as their core business. I would like to emphasise it one more time: there are refreshing exceptions, but I, as a premium consumer, still cannot find a satisfactory product-service mix in these three sectors in Hungary, while I have no trouble doing so in other countries.