This is the second of a five part series. Read part 1 here.
Let’s begin the escape of the retail crate, that narrowly defined box where retailers stock and sell merchandise, by following the things we sell home. There is a long chain of costs and value that a customer experiences for each product they buy. The vast majority of these consumer costs and benefits are ignored by retailers, which makes them an exciting area of opportunity.
What a Bag of Kitty Litter Really Costs
Let’s use the example of kitty litter. A simple bag of kitty litter is full of a dozen little costs in a pet owner’s life. There’s a list to make, a trip to the store, the toting it home, and eventually the unpleasant job of scooping it up. A bag of kitty litter drags along with it a dozen points of need, yet how many of these opportunities does a traditional retailer capture from inside the crate? Just two … product selection and purchase occur inside the traditional retail box. Everything else is left for customers to manage as best they can.
Every one of those points represents an opportunity.
It’s ironic that retailers continue to fight tooth and nail over a few small sources of value while ignoring so many other untapped opportunities. It’s a market ripe for disruption with a land grab waiting to happen.
It’s easy to miss the nature of this opportunity when traditional “inside the crate” retail thinking dominates. For example, the challenge from online sales is often framed in terms of the online retailer’s price advantage. That is certainly an issue, but it views both the threat and opportunity in terms of the traditional retail role of enabling buying.
Claiming the Opportunity
Through a traditional lens, home delivery is simply a problem that online retailers need to solve in order to get back to the real business of selling. UPS and other delivery services were happy early beneficiaries of this willingness to outsource a new opportunity to others.
Yet, it’s clear that home delivery is about more than just enabling a sale. Delivery is itself of value. Consider that bag of cat litter. With home delivery, the trip to the store and the unwieldy lugging of cat litter home are eliminated. Cutting out these steps creates new possibilities to reduce other costs. If there’s no need to lug a heavy bag of litter on the subway train home, a bigger package can be purchased and erstwhile pet owners can make fewer runs through the litter buying cycle.
It’s a good sign that retailers are increasingly unwilling to grant this chance to create customer value to others. Amazon’s one-hour delivery service launched in New York City in 2014 and is now going global with the option available in London for 6.99 pounds per delivery. This provides an fairly explicit market valuation for what a trip to the store costs the customer. the cost of a trip to the store.
IOT in Action - Amazon Dash
The Dash button connects to the user’s home wi-fi network and is synchronized with an Amazon smartphone app. It can be configured to allow consumers to order a pre-determined product using their Amazon.com one-click settings.
Customers place an order by simply pressing a button, which can be placed right where the need is noticed.
Amazon is already contemplating steps to further shorten the product value chain. It is experimenting with incorporating Dash technology is into several appliances in partnerships with original equipment manufacturers.
In the future, predictive analytics could allow Amazon replenishments services (ARS) to facilitate automatic ordering and delivery of consumables, based on the rate of appliance use. This will truly circumvent the product delivery chain.
Breaking Barriers - The Enabling Technology of IOT
To be fair, most corners of a customer’s life have been inaccessible to retailers. Even if an ambitious innovator wanted to claim new opportunities along the customer’s cost and value chain, there were few practical ways to do it.
Those barriers are falling, thanks to a rapidly developing set of new technologies collectively known as the Internet of Things (IOT). These small bits of smart connected technology are increasingly scattered across the path of people’s lives. The Apple Watch literally connects your people’s bodies body to the Internet while the pioneering Nest thermostat now conspires with dozens (hundreds?) of other devices to manage the home environment. Distributed technologies have grown so important that one vehicle review pointed out that the Ford under consideration was a splendid car, but still downgraded the rating because of awkward in-car electronics.
In their early days, Internet of Things technologies seemed like bright and shiny toys looking for a problem to solve. Now a rush of technical development has created rich potential to disrupt the product value chain. In isolation a smart stove is a gadget. Integrate it with a home full of connected devices and some real life problems can be solved.
Retail is ideally positioned to bring the Internet of Things into its own rich problem space. Mobile technologies began to enable retailers to reach outside the store, but IOT dramatically extends those possibilities.
When customer’s lives are filled with tiny devices, it allows creative retailers to:
- Handle Requests – It’s no longer just a mobile phone or a tablet that reaches into a customer’s life. Technology embedded throughout our world in products and other devices provides an ever-growing number of touch points through which requests can flow. The devices don’t even have to be picked up and intentionally engaged. The opportunity to act is simply “there” where the moment of need arises (See the Amazon Dash story below).
- Gain Insights – These same technologies can provide a far richer measure of need in the daily corners of a customer’s life. Why should a customer need to look at how many eggs are in refrigerator when this is something the appliance can easily know? If we know they are running late at the office (because of their wearable technology), why not delay that scheduled delivery to their home?
- Take Action – Finally, IOT becomes even more powerful when it is linked with the ability to act. A genuinely smart litter box shouldn’t have to wait for any human interaction. Scooping, bagging, disposal, and ordering are all perfectly reasonable tasks for technology to handle.
From Small Pains, Big Opportunities, and Bigger Threats
Kitty litter might seem unimportant as a business challenge, but it’s wrong to discount the potential impact of this shift. These real life points of cost and value that stretch through a customers engagement with a product have market value. There is an economic value to serving unmet needs; recall that in London one hour delivery was worth 7 pounds. This an exciting proposition in a market where conventional opportunities are so hard to sustain.
The opportunities can be substantial, but the threats may be of even greater concern. When competitors claim high value needs, they can bundle them in ways that remove the traditional role of the retailer altogether. Consider the case of men’s razors. The Wall Street Journal reports that web subscription sales for men’s razors doubled in the space of a year. Subscription services basically made getting a good razor painless. Buyers piled on, while Gillette, the dominant player in the space with deep ties to traditional retail models, was left to play catch-up. (One of the authors is a beneficiary of this trend. A satisfied Harry’s customer, he has effectively left the marketplace since his needs up and down the chain of value have been served).
Let’s look at the example of cars. Most are only driven 4% of the time. If you live in an urban area, and drive less than 10,000 kilometres a year, using an on demand riding service like Uber is more economic. Beyond the financial realm, the benefits of not owning a car are obvious; no need to drive around looking for a car space, no need to fill up with gas, no need to worry about paying pesky fees on time. The service absorbs those headaches for the customer.
The trend to rides on demand has an effect so profound that it changes urban planning and housing offers. Increasingly, apartment complexes are offering services like Zipcar instead of parking spaces. They’re offering a service as opposed to a product.
Interestingly, playing in these open spaces doesn’t just create standalone opportunities. The points of value are often naturally linked together. Take a holistic look at a restaurant’s end to end approach to delivering a meal. It takes on the job of devising recipes, procuring ingredients, cooking, serving and cleaning up afterward. Once a customer walks through the door she no longer expects to be asked to make a short trip to the market for some ingredient. The grocer disappears as a player in that night’s meal.
Doing Even More
IOT technologies and creative business strategies make it possible for retailers to extend their involvement in the customer’s life. It becomes possible to do much more than offer a convenient place to buy stuff, a premise that has defined retail for years.
That’s exciting, but it is just the beginning. Big Data and advanced analytics enable their own paradigm-busting strategies. That is the next part of this story of disruption.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.