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Never in the modern and industrialized world have business opportunities been so diversified and global as today. Never before, has it been so easy for consumers to access products and services. In turn, the digitalized world is shaping industries of tomorrow, including the way we invest in the stock market. Digitization often lowers entry barriers and is therefore challenging long-established providers across many industries. The “plug and play” business model is creating openings for focused, fast-moving entrants, and in many cases legacy players haven’t been able to adapt. Whether that be because they lack a business strategy, or because they lack vision, or as is more often the case, the management team is unable to overcome certain psychological barriers, the consequence is that digitization is creating change in nearly all areas of business: design, production, and sales. Entire industry landscapes are being modified. Digitally well-connected businesses are facing a number of issues too, including:
How can you invest and benefit from these trends? hat was a small market in the early 2000s when only about 5% of global sales were internet related, has now grown to the extent that over 33% of sales now take place using the internet. In conjunction with this evolution, more and higher-priced products are now included in online offerings and today a well-balanced offer between services and products can be found on the web. There are still pockets of sub-sectors which are less present on the web, but the general trend is that digitalization is disrupting traditional business models. This evolution has taken place not only in the B2C segment, but more importantly, also in the B2B segment. Overall sales are difficult to estimate due to a lack of clear B2B figures, but total retail volumes could reach over USD 2.5 trillion within the next 4 to 5 years. In order to determine the key drivers in this new business approach, understanding the fundamentals behind tomorrow’s shopping trends is a prerequisite. Reinventing the shopping experience – or mobile to online to mobile The older generation may recall the times when the local grocery shop was a food truck which went from client to client. Without a doubt, this was the predecessor of today's mobile concept! This picturesque shopping experience is long gone instead small to large shopping malls have been built where consumers are overwhelmed with products. Tomorrow however, the consumer’s shopping experience will mostly take place on the go, anywhere, and at any time. As consumers are supported by better and better applications, there will be a need for distributors to create web pages through which they can sell their product, ensure brand quality and provide high-level information about their brand, products and services. This introduces new layers of requirements which need to be met at every step along the way for each and every product. This envisaged method of consumption requires not only good logistics and online services (payment, data transfer and connectivity) but also mobile devices sufficiently bold enough to capture the expected developments. In the coming years, a major bifurcation is expected to take place in the consumer goods and consumer services sector. On the one side, there will the group of brands and services which will be available in the shop, online and on mobile. This applies basically to luxury products and high-value services, companies in this field will be balancing between their on and off-line presence. On the other hand, there will be companies running webshops only (for instance Zalando) catering to day-to-day requirements (electronic goods, media, advertising, car and house insurance, money transfers and payments). To stay ahead in this low profit margin businesses, these companies will be focusing on scaling up the available infrastructure (networks, logistics, and marketing). According to an analysis undertaken by the Boston Consulting Group high-value products tend to be bought more often when the consumer has had a prior shop experience. So it follows that multi-channel companies are therefore likely to engage better and more often with consumers. Hence, pertinent businesses will most likely run 3 business structures: the traditional shopping infrastructure, an online shop, and a mobile application. Every unit has its key functions, the physical infrastructure can be used for the retail time customer experience (testing), the online shop can produce product compliance elements, sales, and marketing, and the mobile application can handle recurring sales transactions. Where will the most important changes occur? Most often, consumer related companies do not produce their products, but rather sell the products and services of others. Therefore, most of these companies have no competitive edge over the competition other than that they might have a flagship product on their shelves for a limited time. More importantly, suppliers are keen that their products are distributed as quickly and widely as possible, as products’ life-cycles are shorter than ever. The general trend is that suppliers have a preference for multi-channel companies versus online sellers only. Additionally, a number of suppliers now have plans to enter the online retail market, which is adding additional pressure for traditional retailers. Another observation is that pure retail stores that are lagging behind competitors have a tendency to implement a margin cannibalization strategy whereby flagship products are sold below reference prices; hence, favoring volume over profits. This strategy is obviously not viable in the long-term, especially if there are no effective cross-selling or up-selling strategies. Such strategies attempt to compensate for the drop in sales margin by selling additional high-margin products in a bundle with the low-margin product. This concept is widely used for products with short product life cycles such as consumer electronics. Mobile phones for example are sold below the reference price, but are bundled with high-margin products such as a carrying cases and recurring insurance contracts. The transition, from a pure retailer to a multi-channel shop, is not risk free. There are numerous examples where companies with a large retail client base have failed in the transition to online and mobile. As a retailer cannot easily differentiate on products, the more important but difficult task is to achieve customer loyalty. Obviously, loyalty programs can help, but they are of little help in the event a company has not been able to address and transmit its USP. In addition to that, scalability is a major issue. Finally, companies that master the cross-subsidization approach may outpace the competition in this winners/losers game as wealthy online and mobile consumers tend to look first at product related items rather than directly at the product itself. In the coming days, we shall publish a number of articles (see list below) which develop further the context. You are invited to share these articles. List to analyses of providers and enablers with a focus on:
Knowledge is power.
