focus
closely. Lumo, for instance, produces sports clothing that measures posture and running cadence. But intelligent products have more to offer. LikeAGlove, for example, offers leggings which measure a wearer’s shape so they can shop for ideally sized clothes. The shift is from objects that are static and standardized, to solutions that are intelligent and respond to changing requirements.
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REVOLUTIONIZING O R G A N I Z AT I O N A L DESIGN
Primary business activities – such as product development, marketing, manufacturing and service – will need to align and collaborate, as well as compete, to offer the best solutions. For example, if technology is an integral part of the product itself, such as the LikeAGlove leggings, then retailers will have to adopt new approaches to increase collaboration across their primary activities. Just as with the omni-channel touchpoints, there can be no gaps. Privacy and data protection laws will enable customers to take back control of their digital identity through publicly accessible windows into cyberspace that record their interactions with retailers (e.g. purchase transactions, marketing correspondence and personal details). This means that the way retailers deal with customer data will need to be open and transparent. Blockchain technology (see Dialogue Q4 2016, page 16) will allow secure distributed transactions, which means that companies will no longer need so many internal checkpoints and conventional support services, such as HR, technology and procurement. While these internal services reduce in value, the digital revolution will require new capabilities to be developed, such as data analytics, supply chain logistics and cybersecurity. Conventional forms of organization and the way business is conducted are quickly becoming obsolete.
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T H E C H A L L E N G E FAC I N G R E TA I L E R S
Retailers with physical presence are vulnerable to online companies that have lower overhead costs. Now we see new competitors with assetlight business models, like Uber and Airbnb, disrupting traditional sectors. This is not just about reducing costs or unlocking the value of underutilized assets. It is also about harnessing deep insights to solve customer pain points. Uber scores not just on the cost of its service, but also by providing the simplicity of a cashfree transaction fixed up-front with the driver, a choice of cars and immediate, trackable – thus safe – access to transport. The threat of uberization is that customers will increasingly prefer to transact with a
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checklist for the new reality
Nine strategic questions every retailer must answer:
1
Which set of smart, connected product capabilities and gestures should the company pursue? How much functionality should be embedded in the products and how much in the cloud? Should the company pursue an open or closed system? Should the company develop the full set of smart, connected product capabilities and infrastructure internally, or outsource to vendors and partners? What data must the company capture, secure and analyse to maximize the value of its offering? How does the company manage ownership and access rights to its product data? Should the company fully or partially disintermediate distribution channels or service networks? Should the company change its business model? Should the company enter new businesses by monetizing its product data through selling it to outside parties?
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trusted platform that excels at meeting and anticipating their needs. China shows how this could go. Tencent’s WeChat (Dialogue Q2 2017, page 64) service has risen from being a simple chat platform, to becoming the single most trusted e-commerce platform in Asia. WeChat’s billion users use it for professional and personal purposes, and in some cases never venture outside the company’s ecosystem. Key to its success was the development of a secure online payment system. Unlike competing services like Facebook Messenger and WhatsApp, WeChat earns large profits for Tencent, by earning fees when consumers shop at one of the more than 10 million merchants that have official accounts on the app. It was estimated to be worth over $150 billion in 2016. Once users attach their bank cards to WeChat’s wallet, they end up indulging in more transactions every month than Americans do on their credit cards. A virtuous circle is operating. As more merchants and brands set up official accounts, it becomes a buzzier and more appealing bazaar. The more users sign up on the platform, the larger the treasure-trove of insights into their preferences. That, in turn, makes WeChat much more valuable to advertisers keen to target consumers as precisely as possible. The other threat is from new entrants like Zady or Everlane going direct to consumers and avoiding intermediaries like distributors or retailers altogether. They offer value through lower prices, as they remove intermediaries and high inventory costs; or by focusing on specific segments like tailored services; or by diversifying. These strategies are hardly new, but these companies differentiate themselves by focusing on values and securing the loyalty of customers who perceive an affinity with their brand and purpose. For example, Everlane promises radical transparency, showing their true costs and their markup, which is considerably lower than that typically offered by retailers with physical premises.
Retailers must respond
Life will be increasingly tough for retailers who fail to adapt to the new realities (see checklist, left). Even companies that have built successful franchises over many years will need to test that their value proposition is still valid. The advance of digitization has raised the bar in customer expectations. In a world of radical price transparency, cost will rarely provide a sustainable source of competitive advantage. Existing players need to reinvent themselves for the digital age. Fortunately, digital can enable companies to use their products as windows into the souls of their customers. By understanding their customers’ needs and speaking to their values they can create sustainable businesses, with loyal customers. Q3 2017 Dialogue
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