G.K. Chesterton on recent M&A activity

“I do not believe in a fate that falls on men however they act; but I do believe in a fate that falls on them unless they act.”

Why do you think today’s business news is teeming with M&A activity: P&G buys Gillette. SBC buys AT&T. MetLife to acquire Travelers? Because the old guard is searching for a solution. A solution to what? Let me enlighten you by telling you about some recent sandwich shop activity right outside my office door.

When I moved into my office in Manchester about four years ago, there were three Italian sandwich establishments within a one-block radius (Fortunately for me, there was also a YMCA within walking distance). The subs at all three (or hoagies, heroes, grinders, poor boys, torpedoes) were all above average in quality and competitively priced. It was truly difficult to tell one tuna with the works from another.

Fast-forward four years and the number of sub shops has doubled, without a corresponding increase in population. And now you can indeed tell the difference between one tuna with the works and another, due primarily to the uniqueness of the bread. What does this have to do with M&A activity? Everything.

This scenario is being played out in virtually every category of products and services: from tuna subs to telecommunication. The problem, or course, is one of abundance: abundance of information, abundance of ideas, abundance of technology, and abundance of capital. This wealth of opportunity has resulted in too many companies chasing too few, very well-informed customers. The consequent shift in power has put some serious hurt on the growth plans of even the most “customer-centric” companies as they struggle to understand the new value equation of these turbulent times.

Well, here it is P&G, Gillette, SBC, et al. A simple Theory of Everything in Business: in an information rich, oversupplied economy, customer feelings drive purchase decisions, growth and profitability. If they “feel” that Wal-Mart’s toilet paper is as good as yours, they’ll save some money and “feel” good about that decision. If they “feel” that they’re getting ripped off on the excessive price of their brand of razor blades, they’ll finally become perturbed enough to spitefully switch and "feel" good about it. Persuasive advertising be damned!

Are you competing in a market category oversupplied with interchangeable products or services? Can customers easily (remember, this is subjective) switch from you to a competitor and get just about the same benefits? Do you find yourself frequently competing on price? Welcome to the feelings economy, where planning what to make and how to market has changed dramatically—and permanently.

It used to make sense to pay attention to your industry and benchmark your direct competitors. It used to be enough to learn and diligently apply the latest sales and marketing tactics and techniques. It used to be prudent to treat business like war and try to kill your competitors. But not any longer. It should be apparent to you by now that the status quo is not working.

Your new imperative is to assess and appeal to your customers’ feelings—period. Feelings are the basis for all profit generating consumption in a market at the mercy of customer choice. Focus on feelings, especially the subtle ones that customers themselves cannot articulate.

What are feelings, anyway? For our purposes, feelings are not the same as emotions. Rather, “feelings” refers to a very specific quality: pleasantness, unpleasantness, or neutrality in an experience. Pleasant feelings—excitement, fun, reward, increased self-esteem, etc.—habitually condition desire. Unpleasant feelings—pain, effort required, decreased self-esteem, etc.—condition aversion. And neutral feelings condition forgetfulness.

Given this definition, the purpose of every business in an oversupplied market should be to increase customers’ pleasant feelings while minimizing their unpleasant ones. This goal should be systematically applied to every interaction a customer has with a product, a company, its communication, or its representatives. A comprehensive feelings analysis should be applied to every business process - to your brand!

Johan Arndt, in his paper “Reflections on Research in Consumer Behavior,” published in Advances in Consumer Research 3 (Association for Consumer Research, 1976), identified five stages through which the customer moves during consumption: problem-recognition, search for information to evaluate alternatives, implementation of the purchase, physical consumption, and post-consumption activities. By examining these stages in detail, your business can see feelings through your customers’ eyes, thus uncovering the real value of your offering.

For several decades, the mantra of marketing has been “USP” and “features and benefits.” This traditional view, however, concerns itself with a rational, analytical view of value. In an oversupplied market with an incomprehensible amount of conflicting information, rational decision-making is a myth. So instead of a Unique Selling Proposition, start thinking about your Unique Feelings Proposition.

Start paying attention to what people do (which is the best indication of how they feel), not what they say. And realize that the more choices there are and the more complex life becomes, the more people make decisions on what “feels” right to them and not on some objective truth. Do you honestly believe that P&G’s Olay face creams have been scientifically proven as effective as botox at eliminating wrinkles? I didn’t think so. But a lot of people obviously do.

Face it (no pun intended), the US economic tide has receded and there are a lot more brand boats in the sea. Growth is no longer guaranteed. Take a look at how strangely the stock market has been behaving. Even though two-thirds of S&P 500 companies exceeded their 2004 fourth-quarter earnings projections, share prices are stalled. Why? Because investors care more about future earnings, and they too are having a difficult time seeing the growth potential.

Tom Peters recently ranted on his blog (as only he can), “P & G buys Gillette. $57 billion. I only have one, small question? WHAT'S THE POINT? No "economies of scale" for companies that size. Synergy? Batteries and toilet paper? So I guess the answer is obvious. What's the point? Because they can! Silly boys! Ah, if only their energy could have been directed to ‘insanely great’ products, to steal a phrase from that boring ‘cool products’ guy, Steve Jobs.”

Who knows? Tom may be right. But then again, insanely great products may be tomorrows ante in the consumer products arena. Perhaps P&G&G has something else up there collective sleeves. Maybe an innovative distribution model. Anyway, I’m sure if Jobs had leaked his idea for his most recent growth surge - a new kind of mp3 player - it would have been torpedoed with a similar sentiment. “Another mp3 player? C’mon Steve. Think different, man.” But Steve said, “Damn the torpedoes. Full speed ahead!” Why? Because he is intimately aware of the feelings of his audience. It’s his strategic advantage. It should be yours, too.