Warning… unfinished thoughts from a non linear thinker with typos. Feedback appreciated.
Why did IBM choose to outsource DOS to MSFT? How did US auto makers miss the small car market? Anyone remember WorldBook encyclopedia? How did Research in Motion loose its dominant position? What happened to Kodak (it had digital patents it didn’t use)? Why is Uber so successful?
The nature of competition is changing in MANY industries, this short post focuses on consumer commerce. What is driving the change?
- Consumer Behavior and Expectations
- Non-Price Product Factors
- … etc
Make no mistake Commerce is being REWIRED.. How do you rewire 25% of your Economy? (US Retail Sales of $4T is 25% of the US $15.68T GDP). Unfortunately most of the “rewiring” is not by design… Today we see existing companies and business models working to “bolt on” changes to their models rather than transforming products, processes and systems.
For example, imagine you are a Retailer, how do you compete? A) You sell commodity goods at the highest possible price (see Retail 101). B) Sell unique goods at the highest possible price. How do you achieve this? Well there are 100s of strategies here (ie. loyalty, market downs, coupons, loss leaders, price optimization, promotions, trade spend, …). These strategies have people assigned, budgets allocated, systems and reports that have been “tuned”. This organizational momentum makes pivoting very hard.
The consumer strategies above may be best summarized as: getting consumers to spend more with you, and leverage that loyalty for profitability. These strategies have been in place for 100 years! Where is the innovation and data? Product insight? A digital version of a loyalty card is NOT innovation… similarly electronic coupons are just automation of an existing (broken) paper process. Is it any wonder we see so few successes in mobile anything? Most innovation is thus “bolt on” with little incremental VALUE.
There is SO MUCH opportunity for restructuring retail Commerce that I’m challenged to provide examples that are broad enough.
- When was the last time you clicked on a banner ad?
- Every year almost 30% of fresh fruit and vegetables are discarded for spoilage (see USDA),
- US Apparel sees 30% of its inventory go in mark down fire sales (See Forbes).
- What if a store could more accurately estimate consumer demand? Would you commit to purchase for a 30% discount?
- How can Banks justify all of those branches and employees when all I use is the ATM?
Today much of retail is about location, convenience, impulse. What if consumer behavior shifts from convenience to community reputation where shopping is completed on mobile? What if customized versions of any product could be at your door the next day? What if products weren’t all disposable, but rather assigned to approved reconditioning and repair specialists? My favorite example of a store of the future is Korea’s Tesco. (note pic below is a poster of a dairy case in a subway).
Commerce is ripe for a MASSIVE rewiring. The business drivers behind the rewiring are complex as is the technology. Today OMNICHANNEL is a myth.. most consumers finish the purchase in the channel in which they began. Mobile stays in mobile, online stays in online, physical stays in physical… Ad spend has thus been “stuck” as well. In 2008, less than 10% of P&G’s $3.2B Ad budget went to digital, last month Lafley said that 35% will of a $4.8B budget will go to digital, spend not even tracked by Advertising Media/Analysts.
What is changing?
- Consumer Insight and Trust
- Consumer Behavior
- Use of Data
- Mass Marketing to Targeted
- Physical Retailer as Publisher
- Custom Pricing (no one knows that another person paid)
- Finer grained products
- Distribution and demand planning
- Complex incentives by products, community, social group, inventory, availability…
- CMO as Real Time “mission control” of the organization
- Consumer interaction with merchandise and advertising (through mobile)
- Transition of Commerce from Transaction to Consumer Interaction (see shopper marketing).
- Mobile significantly impacts everything… it will be your new consumer touchpoint
How will change manifest itself? Organic? Evolutionary? Instantaneous? What I look for is for someone to solve a problem, and meet a need. Uber is my example of the decade.. using information to meet a need that benefits both consumer and driver. If you mapped the information flow of Uber, the value over the existing system would be obvious.. eliminating the need for a central dispatcher, plus the benefit of “reputation”. I would suggest that we take a look at the data flow in retail to see where we could add value, but the problem is that there are many “dispatchers” each refusing to share their own data. This is why Amazon and WalMart win… their supply chain is integrated.. and consumer value propositions well understood.
Why didn’t anyone think of Uber before? the need was obvious!! History shows again and again that people are biased by life experience and hence tend to see things from a biased view. In other words, outsiders providing analysis on Apple Passbook and Google wallet see them from the perspective of today along the lines of what exists today… a static view. This is why IBM did not see the potential of the PC and commit needed investment in DOS (margin was terrible), why RIM did not understand what the iPhone did to an integrated “digital life” (we are more secure … who needs music), or why WorldBook didn’t build a wikipedia community. Product ignorance, hubris, momentum, complexity, cannibalization all make pivoting very hard.
I’ll be adding onto this blog later in the week in order to add depth to the following points below.
- The pending changes in Retail are TECTONIC, yet Banks/MNOs are still working to solve YESTERDAY’s problems. Retail margins have compressed from 4.2% in 2008 to 2.4% in 2012 and Banks are proposing mobile payments solutions that increase costs. It’s like trying to sell water to a guy drowning in a lake.
- Large organizations are terrible at strategy; most are challenged to coordinate internally. In a dynamic environment businesses must partners with the entities driving the change in order to influence it and to stay connected to it. (see Apple blog)
- Retailers are driven to identify means to compete (beyond price). Who can help them? My bets are on Partners must have a proven track record of delivering value to MERCHANT and to CONSUMER.
- I see a $750B US Total Addressable Market. Much of the “new” value will need a new network and platform. At the merchant level, we see leaders like Square Register, in the phone we see Google Wallet, in networks we see MCX and Visa/JPM. The losers? Any entity that can’t use data to describe precisely what it achieved (ex TV Advertising).
Start Up Advice
- Take a dynamic view of strategy through scenarios.
- Focus on delivering a commerce value proposition to Merchant And Consumer
- Avoid automating old broken processes
- Address a pain point in a new way
- Help consumers understand a new value proposition, in a way that makes sense (financially, environmentally, and socially).
- Use Social data in some new way.
- Find greenfield players and partner with them (avoid cannibalization issues)