Here's why Nielsen's Rick Kash says previous No.1 firms don't exist today

Five years ago, Rick Kash, then the founder and chairman of The Cambridge Group and Dave Calhoun, then CEO of Neilsen wrote How Companies Win which made a case for companies orienting themselves towards consumer demand as opposed to what their supply chains were geared to produce easily and efficiently. In a scenario where supply exceeds demand, the challenge is to locate segments of high profit demand. Half a decade down the line Kash feels vindicated and speaks to Brand Equity about how companies of all sorts can be more demand-driven.
Five years after How Companies Win do you believe it's still as relevant? Why?

If your principles are right, the cases should stand the test of time. At the time, we were just starting down the track of demand strategy with the Hershey company and since we wrote the book their stock is up 320 per cent and margins are up by 700 basis points. With All State Insurance, we guaranteed that if you had an accident, we wouldn't raise premium. Today 20 per cent of the business is accounted for by complete accident forgiveness.

McDonalds' one of the companies you'd mentioned as an example of turnaround is again facing slumping profits quarter. What do you believe went wrong?

The same thing happened to them years ago. In following the supply model, they went in for more sandwiches, beverage, deserts and side dishes. But they started as a fast food restaurant: where you order a really good product and get it quickly. Today there are so many products, they confuse the customer. People drive up with eight cars behind them and have to look through 18 hamburgers, five chicken and two desserts. They are reducing the menu size and it will be a very good stock to buy. They are going back to make it an easier proposition. That's what the new CEO is doing: providing good food options but less of them.

What are some of the most reliable indicators of demand?

The most reliable indicators are predicated on the correct use of hypothesis. I go to people who use the category or my brand and give them four or five hypothesis. If the majority says 'No 4 is the demand I currently have that I can't satisfy', it enables you to invest with confidence, whether it's a new product, service or technology. There's more money wasted by someone inside a company who enthusiastically convinces herself or colleagues about the demand that they need to go after. I could go to the people and let them determine what the best way to satisfy demand is. For instance, at Sears, 60 per cent of profits used to come from their own credit card for which they charged 21 per cent interest. But the credit card wars were starting and the competition was lowering the amount of interest. The Sears chairman said "We have to lower the rates from 21 per cent to 17 per cent." But if they did that, they would have given up all their profit.

We went to see the people who never paid off their bills completely and asked them about what we could do. Everybody including me thought the answer was a lower interest rate. Turns out all of us were wrong! What they really wanted was a lower monthly minimum payment. We gave up the monopoly, kept the interest rate at 21 per cent but lowered the monthly payment. And then, despite losing the monopoly Sears profitability was up by 43 per cent. The best way to be sure of demand is as simple as asking a question.

So, does traditional research then retain its primacy?

Yes, but most frequently people test an idea. The sequence ought to be that you start with a hypothesis and then depending on what the consumers say, that leads to an idea. Research should start with many different hypothesis. There's an old story about Henry Ford where he is supposed to have said "If I'd asked people what they wanted, they'd have said faster horses."

In your book you'd mentioned companies like Amazon and Facebook are examples of firms that are a lot more demand driven. Which of the more traditional, pre-internet era companies have successfully embraced a demand based model?

Before they used a demand model Hershey's business was shrinking. They determined the profitability of their shoppers and found that on some people who bought chocolate, they made 58 per cent and on others just 12 per cent. The 58 per cent-ers enjoyed candy and paid full price. The 12 per cent waited for sales. So they began to aim business at their most profitable shoppers. Apple almost failed as a computer company and then they uncovered latent demand: nobody was asking for an iPad or an iPhone.

What are the barriers that companies encounter most often when trying to move to a demand driven business model?

When someone succeeds doing something for a long time they believe those lessons are what's going to carry them to the next step; they just have to work harder. What they don't recognise is the business or category in which they compete has changed considerably. This is what Schumpeter talked about in creative destruction. As demand shifts, from standard phones people who sell them say if I sell harder or cut my cost, I'll do better, whereas the movement is to mobile phones. How your business will win in the future is very different from how it won in the past. There are companies who used to be No 1 but don't exist today because they stayed with the old supply model.