Will meta be betta?

The last time we went sideways and backwards in any meaningful sense was the GFC. That was an asset bubble crisis where bankers had written home loans to anyone and wrapped them up into lovely little packages that bearded Brad and average Batman covered so clearly in The Big Short. This is the opposite. We have kept asset bubbles like property and tech stocks alive by printing money and keeping interest rates low.

We have encouraged people to chase yield wherever they can find it from crypto to the latest tech unicorn selling subscription dog food direct to you. Oh, wait that was 1993. This is 2022. My confusion is somewhat excusable in that this reset has more in common with the dot com crash than the low doc downturn. It is a return to fundamentals where money has a cost and risk has a price. The good news is consumers have saved lots of money but with the cash rate likely to reach 3.6% by this time next year and cost of living up to 6.1% yr to date..

It is not a recession, not a downturn, maybe a side-turn? Either way, it has all the hallmarks of an inflection point that forces many to rethink what they are really doing. It is this reconsideration that is critical to focus on. It’s why something like Private Label does well when budgets get reassessed. If you are willing to dig deeper than the analysis you get on Channel 7, you will find that people's reconsideration of brands might start with budgetary pressures, but it ends somewhere more nuanced than you might think.

Salience and preference

If you believe in brand salience you have to believe in what it results in, brand preference. By way of example the first brand I think of when you say chocolate is Cadbury, so it has salience and the majority of my mental availability. It is also what I prefer to eat. That changes when you make me stop and think about my purchases, which is what changing circumstances create. We start to pay attention to something that was a habitual purchase (often confused with brand loyalty) and we reconsider it.

I may still think Cadbury when you say treat but buy Coles because I now prefer it. Investing in price as the cost of goods runs away is a hard sell but maintaining share really is job numbers 1, 2 and 3. In the short term, the destruction of your margin kills but in the long term avoiding being substituted is the aim. The compounding effect is that once any consumer switches they are unlikely to switch back once the perceived inferiority is overcome. While of course trying to stretch the family or personal food budget further is the start of the story, the close of the story is a permanent change of preference.

This effect was described way back in 1996 in a seminal HBR article that was later turned into a best-selling book Brands Versus Private Labels: Fighting to Win. Its findings were simple. Collectively, private labels in the United States commanded higher unit shares than the strongest national or FMCG brand in seventy-seven of the studied 250 supermarket product categories. The smart money kept reading and looked where this might head in the other 173 categories and asked what it would take to lead in every category in the supermarket as the clear number 1. While you can pull an Aldi and mimic brands and limit assortment, most retailers invested heavily in sourcing and product development. Here we are twenty years later and with a few notable exceptions (from premium drinks to speciality products, to beauty to power tools) brands have ceded share leadership to their own branded substitute. Many have also ceded preference. At points of inflection you can grow by meeting it with an alternative but if you lead you need to try to stay on the pitch and avoid being subbed off.

Changing circumstances and existing choices

In consumer choice theory the substitution effect is an attempt to understand the causality between changing circumstances and your existing choices. It is why high barriers to switching are the key to consumer loyalty. They are just as much a part of brand preference as is brand image and experience. It’s great to be liked but your customers also need reasons to remain loyal. I may fall in love with an iPhone but I stay because once married it is too hard to start over no matter how clunky the O/S is becoming. It is an unfortunate truth but we are more likely to put up with a bad experience if the brand is more difficult to leave.

Substitution is not just important in products and services. It is also a truism in our labour markets where one of the biggest substitution effects in our lifetime is unfolding before our eyes.

What our recent curated chats with Albo at the jobs summit failed to see is that in asking Nanna to do another tour of duty we are edging into one of the biggest substitutions in our history. It is ‘showing up’ in this full employment low wage growth environment and the root cause is we are running out of humans of working age.

In 1950, women were having an average of 4.7 children in their lifetime. In 2017 the global fertility rate nearly halved to 2.4 and it is projected to fall below 1.7 by 2100. As context, for a country to naturally replace its population, its birth-rate needs to be at least 2.1. While the developed world has lived this statistic for a generation it is now a whole-of-world thing.

The difference in this operating environment is not just in the cost of goods but in the scarcity of labour. If I was closer to 55 than 45 I would hang up my skates too. There are only so many Zoom calls from the bedroom ‘home office’ in the ‘new normal’ one person can manage. The lifetime value gets old pretty quick. In this context offering everyone free childcare, bigger tax breaks to keep working and bigger immigration programs make lots of sense to expand the short term while we build more runway for the long term. Fuel prices make us worry about peak oil when the bigger issue is that we are at peak workforce participation.

Creative destruction

Creative destruction always needs a fuse to usher in a new era. Ours is found by looking at what is happening to the biggest source of value creation for most individuals. Our labour. While never more in demand, the productivity that boost wages has been stuck since the last time we got here in the early 1990s. That time the force of creative destruction was the disruption of search, mobility and the database. This time the formula is likely to be distributed ledgers, augmented work and mirror worlds. The result of the pandemic really wasn’t the big resignation, it was the big retirement. For those still at work we are far from entering a paradise of rising wages. Your new colleague likely looks at you in the mirror each morning, why? It’s you silly. Just likely to be an augmented, digitally enhanced you.

That doesn’t mean the robots are not coming for your job. They are already here, and we still have significant resourcing issues. Robot labour or task automation has been with us for years. Ever since we made the wheel, we are focused on how to use tools to replace repetitive tasks. Our new one is the 3D sequel to today’s 2D internet.

The future is three-dimensional

Will meta will betta? Not sure, but it will increase productivity because it will change the way we relate and interface with the digital world. Its possible application and promise is already everywhere around us if you look. First off, it’s important to note that there are different types of verses, even though the majority of these are currently internally focused. Think gaming as a good example of this, where for the individual playing it is great but for society at large how well you do at Halo has more correlation to you becoming anxious and isolated, than it does to changing our productivity.

What will? Different ways to interface. Think about your own life where your shoulders and neck slightly crane to stare, type or voice command a device to give you an answer. We are interacting with a 3D world using 2D technology. Gesture control, eye tracking and distributed information will allow us to unlock the block that comes from typing, searching and mousing.

Brands will profit too in many ways: imagine how many bad dinner table convos could be avoided by Ikea furniture coming with augmented reality to guide you through the steps; roadside assistance with a virtual guide to change your tyre; or remote medicine where an expert can guide you through stitching up a loved one. These types of dimensional interactions are where the world is heading and while it is always dangerous and inaccurate to predict the future world in minutia, the long-term direction is now much clearer. We will once again substitute our current reality with a better one. Just steer clear of the sucker verse.

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Be better to each other.