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Is driving more efficiency in Retail the only way to innovate?

Aroop Gupta, 10/4/2016


A Wall Street Journal article pointed towards Walmart partnering with Uber and Lyft to deliver groceries that customer order online.[1] The article also points out that this was primarily a move to counter the competition from Amazon. While it surely is a good move to counter the potential disruptor but the question is, is that the only one? The business model of Amazon has questioned the existence of brick and mortar stores for retail. One of the ways the incumbent can respond to this competition is by opening up more stores to reach out to more customers. The other way to solve the problem is to take a modular approach and address a specific Job to be done of the consumer to segregate its offering from the incumbent.

Figure 1 - Forces of progress in action - Seller trying to improve the 'Attraction of the New' without realizing the 'Anxieties of the New' from a customer’s perspective

Online shopping provides the users with a numerous product options to choose from, the convenience of shopping from almost anywhere and also competitive pricing. However the very parameters due to which online retail is popular today may be the challenge of tomorrow. While online shopping has provided us with choice, convenience and competitive pricing, what we have readily traded off is the human touch. The best in class algorithms and data analytics only provide the user with one way information and fails to identify the ‘Job to be Done’ of a consumer. Going back to what Professor Theodore Levitt of Harvard business school said “People don't want to buy a quarter-inch drill. They want a quarter-inch hole”. Similarly online shopping can provide options for selling a buyer a quarter inch drill (and maybe some drill bits for free) but will fail to understand that the buyer needs a quarter inch hole.

This also reflects in the buying patterns of consumers. Nearly 40% [2] of the products sold online were those which were highly functional. These include Software, Computer Hardware, Consumer Electronics, Office Supplies, Books, Music, and Flowers. Also the fact that the online retail is only 8% of the overall retail market of the USA has something to point towards the context in which consumers hire online retail. Complicated website design, excessive choice, lack of decision making support, inability to touch, feel, try the product and excessive promotional offers only add to the ‘Anxiety of the New’ product. This is a classical problem of ‘Job to be Done’ where the seller tries to improve the attraction of the new without addressing the underlying anxiety. This is the reason why many luxury brands do not want to go online as it is a compromise on the experience of the products for their customers. [3]

The solution to this problem may not be as easy as it calls for creation of multiple experience centers for the customers. Traditionally the brick and mortar stores primarily have been the experience centers for customers. In other words does it means opening up more stores geographically which require heavy investments in terms of resources. In addition to this it is in exact opposite to the current priorities of the incumbent – go online vs stay in store. However there may be a lesson to be learned from the likes of Uber, Lyft, AirBnB and One Fine Stay. Essentially what all these platforms did was created additional supply near the consumer by connecting them with multiple underutilized assets around them. In majority of the cases these underutilized assets were located next to the consumers allowing them to access and use them conveniently. A similar approach may be adopted in this case where an incumbent can modularize the customer experience part of the shopping by leveraging its customer base or offerings from sharing economy and turning them into customer experience centers.

For instance the next time a customer want to order furniture online, the portal directs them to a nearby address where the furniture is already setup in the living room (maybe an AirBnB) rather than showing neat pictures online. The customer can visit the home to experience the furniture before they buy it. While another example of this could be hiring the empty basements and rooms to act as temporary warehouses for apparels form where products can be shipped (for trial at home and sale) in hours than days. This strategy may work especially well for products that have the job to be done of experiencing the product before buying it. Some examples could be beauty products, jewelry, apparels and home appliances.

Figure 2 - Incumbent copying the disruptor and driving more efficiency. On the contrary disruptor realizing the JTBD of the customer moves towards incumbent's business model

Amazon has entered into a similar arrangement in India, where it has partnered with multiple small retail stores to deliver products ordered through its mobile app and website in hours. However what seems to be apparent is that in this case Amazon is competing more on speed of delivery than consumer experience.

Another way to solve the experience problem is by engaging your customers to be your brand ambassadors. According to a 2015 Neilsen survey,[4] ‘Recommendations from people I know’ topped the charts on what form of advertising consumers trust most. Providing some form of benefits to consumers who talk about your products and help prospective buyers move towards a purchase may be another way to address the problem. After all when the consumer recommends the product to a friend or family member (the prospective buyer), they talk about their ‘Job to be Done’ and how much did the product help them. Also there is a much more personal touch to the advice than a sales representative because of the existing relationship. If the prospective buyer has the same ‘Job to be Done’ as the person who is recommending, the advice is able to ease the ‘Anxiety of the New’ much faster than the best of the sales representatives or information.

At this stage I would like to point out that incentives for an existing customer should not be mistaken as something that pushes sales. Instead it should be something that would help the consumer reduce their Anxiety. Linking incentives to sales for customers is no different than affiliate marketing which has its own challenges. As an example in this direction consider a customer who advises prospective buyers. The metric for measurement would be what was the average satisfaction level of prospective buyers with the answers to their questions rather than what was the total dollar value of sales. Understanding this is of key to drafting this strategy without which the outcome can be very easily diluted.

Thus to summarize, replicating the business model of a potential disruptor is one way to respond to the competition. In which case the incumbent takes the disruptor head on. However competing on a new trajectory of competition helps the competitor segregate its offerings from the disruptor and creates a new market of its own. Till date we have looked at the offerings of the sharing economy as low cost replacements for products like taxi, limousine services and hotels. However the offerings of sharing economy can also be leveraged by businesses in a modular way to address the Jobs to be done of a customer.

Notes

[1] http://www.wsj.com/articles/wal-mart-to-test-grocery-delivery-with-uber-and-lyft-1464926454

[2] http://www.statisticbrain.com/top-selling-internet-items/

[3] http://ecommerce-platforms.com/ecommerce-selling-advice/why-are-so-few-luxury-brands-sold-online

[4] https://www.nielsen.com/content/dam/nielsenglobal/apac/docs/reports/2015/nielsen-global-trust-in-advertising-report-september-2015.pdf