You can't cut your way to wealth
If you've experienced living in the USA at any time in the last twenty years the brand "Kenmore" will be familiar. At the start of this century, it was one of the top appliance brands in the country, and could only be bought at a Sears store. Even just 15 years ago the brand was valued at $2 billion by Sears.
However, with the rise of on-line business, Sears has come under pressure like all brick and mortar businesses although Kenmore did not suffer so much from this competition as it did from the inexorable growth of Asian brands like LG and Samsung and the rise of outlets like Home Depot, Lowe's and Best Buy who offered better featured products and better prices. Where once Sears dominated the appliance market now they are almost an afterthought in consumers' minds.
Under pressure, Sears have been selling assets (like its Craftsman line to Stanley Black & Decker), closing stores (two thirds of their stores have closed in the last dozen years) and cutting costs to beat back the tide. That included cutbacks in marketing and R&D on Kenmore appliances.
Additionally, adding fuel to the Kenmore fire, customers concerns were stoked last year when Sears warned that they might go out of business. How does that make you feel about the value of a warranty and long-term reliability?
The demise of a once powerful brand is a reminder of the old adage, "you can't cut your way to growth". The bell started tolling for Kenmore the minute Sears management decided to cut back on marketing and R&D because there is no way that manufactured products can stay competitive without clear differentiation and a customer perception of 'value for money'. And that doesn't happen with a stagnating product line and a reliance on old marketing themes that might surface from a long-forgotten corner of the consumer's mind.
The same message needs to get through to governments - particularly the UK government -which, since Cameron and Osbourne and now with May and Hammond have been foolishly trying to implement an 'austerity' policy. Granted, investment to support growth and competitive differentiation takes money and UK borrowing is unhealthily large, but in an age of ridiculously low interest rates by historical standards, the current UK government has squandered an opportunity to invest and has instead bolted down the rat hole that time and time again policy makers have found leads to trouble, stagnant or declining wages and lower GDP per head.
Growth comes at a price, but it's a price worth paying when government borrowing is so historically cheap because cutting your way to economic health just leads to a reduction in wealth. What makes it even more damaging is the likelihood of a 'hard' Brexit which will only add to the misery.
It's a message companies should take to heart.