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PULSO ESTRATÉGICO 2014


The Future of Consumer Products

From Analog to Digital

Overview

Digital technology is effacing the borders between consumers, stores and brands. This represents big opportunities for consumer products companies that are prepared to reinvent themselves in the digital world, and a great risk for those who don’t try.
Consumers across the globe have clearly embraced the digital world. They have quickly adapted to doing their grocery shopping during daily travel time (home-work-home); they download books, music and movies; they tweet and share their shopping experiences on social networks. This expectation to be able to consume "anywhere, anytime" is growing exponentially, strengthened by the growth of smartphones, social networks and information in the cloud. As Erik Brynjolfsson and Andrew Mcaffe mention in their book The Second Machine Edge, "computers and other digital advances are made to develop mental power (the ability to use our brains to understand and shape our environment). This allows us to break with the limitations of the past and conquer new territories."

The growth of digital technology is empowering consumers and changing decision power from corporate to individual. Consumers and buyers now have access to a wide variety of products and services online.

They compare prices, buy and share their opinions digitally. Good shopping experiences and good products are spread widely on social networks, creating peaks in demand. But, at the same time, unpleasant experiences are also shared, which can damage the results of some brands.

CONSUMER COMPANIES RESIST EMBRACING DIGITAL TECHNOLOGY
Consumer products companies are usually aware of new trends, but, even though in today's world we’re seeing great and exciting innovations in the digital space, our perception is that they haven’t become sufficiently aware of the magnitude the digital change has reached, and how it will shape the future. Most consumer companies respond with tactical actions, rather than strategic ones, to the challenge of the digital revolution: they add digital initiatives to an analog business. As the lines between manufacturers, distributors, retailers and consumers are becoming increasingly blurred, many experiments have been generated in the digital domain, both from manufacturers and retailers. A major consumer company has launched its own brand of stores to showcase its coffee machines and capsules, integrating them into its online service in order to serve its consumers. A major retail company has created a virtual store in Korea’s subway, where consumers make their purchases by scanning QR codes. If consumer products companies want to enjoy sustainable growth of their business in the future, they need to implement a holistic scheme that places the consumer at the center of this.

GLOBALIZATION IS MAXIMIZING THE NEED TO CREATE DIGITAL CAPABILITIES
We see that digital strategies are doubly important for consumer companies when we consider the impact of globalization. Firstly, the disappearance of political and commercial barriers around the world is incorporating new workers, consumers and shoppers into a global economy. This, combined with the reduction in transport and communication costs, creates huge opportunities for all kinds of businesses. The second factor is the growth of an emerging middle class of consumers (by 2015 there will be at least a billion of them), which presents a vast new potential market. But many of these consumers live in rural areas that lack infrastructure. 15 million new stores would need to be built to serve these new consumers, which would mean a huge cost for retail chains, and this would in turn prevent these consumers from being offered a competitive price. To make their business sustainable, companies must capitalize on opportunities for growth in this digital era, evolving towards a digital operational model. Merely taking advantage of digital technology isn’t enough: companies need to share digital and technological strategies that give them the agility required in a truly consumer-centered scheme.

EVOLVING TOWARDS A DIGITAL OPERATIONAL MODEL
Changing to a digital operational model requires rethinking corporate structures, the way we connect with customers and consumers, product development, the supply chain, marketing, and sales.

  1. Focus your organization by types of consumers and markets, rather than by geographies
    Structuring business models by geography makes sense in a world of high transportation and communications costs. These days, companies need to structure their business in socially- and economically-coherent groups, creating customer segments and schemes for serving these segments. When it comes to service schemes for winning in the market, there is no one size fits all solution, and not every market demands the most advanced solutions in order to be successful. It’s important to understand that some consumer segments can share the same business model and be structured by Market Archetypes. Companies need to organize their commercial systems and processes, as well as their brands and marketing activities, around these archetypes.

  2. Expand sales online through retailers, or directly with e-commerce
    Most growth in retail chains comes from convenience, impulse buying and business outside of the store (including sales online and via email and other means). Asian countries have been at the forefront of driving sales outside of the traditional means of physical stores, being the first to implement a mobile payment scheme. With lower costs and greater flexibility, the so-called e-retailer is leading this change. This has been a major disruptor in commercial schemes: companies have found new opportunities to sell directly to their consumers and strengthen their relationships with them like they’ve never done before. E-retailers are able to operate without the fixed costs of traditional stores. A wide range of products can be offered since space isn’t limited like in physical stores. And they are able to use part of the savings in costs to offer consumers better prices.

  3. Ensure there’s integration throughout the supply chain in order to provide a continuous shopping experience
    Integrating physical and virtual shopping experiences throughout the life cycle of a product translates into rapid development. This has caused intangible factors related to how consumers evaluate and embrace products to be valued more and more (how they use and pay for them, and how and where they want to receive them). A survey conducted by Accenture last year on consumer expectations and habits found that 8 in 10 people said that the ability to pay for purchases anywhere and anytime, and the ability to decide, at their convenience, how such purchases are to be delivered to them is the most important to them. This means that parallel capabilities, such as payment methods and processing purchase and delivery orders, are essential to the future development of brands. The moments of truth are converging, and in order to achieve the continuous shopping experience consumers want, companies will have to be present at every stage of their customers and consumers’ shopping journey, from the initial phase of discovering the product, to the buying process, delivery and user experience. Companies will need to commit to the above and manage their value chain holistically, both inside and outside of the company.

  4. Build relevant and personalized relationships between brands and target consumers
    Areas of marketing have vast experience in the art of the monologue, constantly highlighting the benefits of each of the brands they manage to consumers. These days, these areas need to learn the art of dialog. They need to find the points of intersection between what they want to say and what consumers want to hear, through multiple channels. Content needs to be customized and continually updated so that it is relevant to individual consumers. This represents a big opportunity for companies, as they have the opportunity to build direct relationships with their consumers. But there are also significant challenges. In the digital world, it is up to customers and consumers where they embrace or consume any marketing message. If the content isn’t relevant enough to them, they simply discard it. Achieving a personal and digital relationship with customers and consumers individually requires investment in technology and analytics. This will enrich the relationship, taking it beyond the transactional. Bringing together the elements above will allow for the building of relevant and personalized relationships with consumers based on a 360° vision of digital interaction, which will enable companies to anticipate their tastes, habits and expectations.

  5. Expand your portfolio of products by removing the space restrictions of physical stores
    The size of physical stores, competition for shelf space and supply chain costs have limited the portfolio of products offered to consumers. The digital revolution is removing these barriers and allowing for an exponential expansion of the portfolio of products capable of meeting consumers’ needs and expectations. Technology is the driving force behind this initiative, making mass customization of products a reality.

  6. Facilitate the joint development of products, allowing for the customization of each consumer’s favorite products
    Companies used to exploiting mass markets will have to learn to exploit the individual market, to focus on individual consumers and influence their purchases. This is highly profitable, because the more specific a product is to a person, the more valuable it is to them. Advances in technology are enabling the profitable mass customization of products, allowing consumers to choose their tastes, such as fragrances, flavors, colors, and size of packaging.

GIVING MEANING TO THE NEW ENVIRONMENT
These trends are removing barriers in the consumer products industry. Manufacturers will be able to be retailers, distributors and media operators. On the consumer side, they will leave the passive role that they have had until now behind and they will become more critical, demanding more participation in the designing of their products (and, in some cases, creating their own online stores). Although companies constantly talk about the need to digitalize their business, they are very far from understanding the scale of the revolution to come. It's time to be disruptive with a digital operational model.

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Benjamin de la Grana
Director Products Industry
Accenture Mexico

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