By John Barrington
During the 1990’s a popular term in banking was ‘disintermediation’, describing the move by banks forward through the value chain. Actually, it started in the late ‘60s with consumers investing directly in securities such as government bonds and equity stocks rather than leaving their money in savings accounts. Consumers were the beneficiary of this phenomenon and it fundamentally restructured the financial services sector.
Today, we are seeing a different form of disintermediation and it is being powered by the internet. E-commerce drastically changes the four P’s of marketing by placing heavy emphasis on Place, or distribution. The manufacturers of many products and services are now becoming retailers in their own right. “Brands are the retailers of the future”, says retail expert James Stewart of Ferrier Hodgson. Witness Apple and the runaway success of the Apple stores. In the automotive industry, witness Subaru, which is now selling its BRZ model directly to consumers via the internet. In so doing, they are bypassing the traditional dealer network. Witness Amazon, which has put such pressure on local book stores as to see Angus & Robertson and Borders Australia disappear locally and Borders to file for bankruptcy globally.
In the US we now see Walmart dropping the Amazon Kindle device from their shelves. The reason? Now, every time a consumer turns on their Kindle to read a book, they are presented with an array of options of not only books and videos, but clothing, furniture, cosmetics, toys, automotive parts, computers, groceries, home, garden …. the list goes on and on. And all for a price lower and often with faster delivery than Walmart can promise. As personal experience recently when shopping for office furniture. We were attracted to a particular design but were told by the local furniture store that it was 10 weeks before delivery could be effected. We went on-line and found the same product, same quality, at 50% of the store price and only 5 days delivery! It was a pretty easy decision.
Not only has the internet reshaped the distribution channels, it has also dramatically tipped the negotiating power in favour of the consumer. Previously the information asymmetries were with the retailer, who knew more about their product and competing offerings than the consumer did. Today the consumer holds that information in their hand, readily accessible and up-to-the-minute with internet searches via their mobile phone.
The relationship between technology companies and retailers is turning from co-operative to competitive.
But the real message is strategic. It is not just technology companies seizing the opportunity to move through the value chain; it is companies across all sectors and retailers selling brands are under threat.
Thinking about this strategically is important because, just as for Walmart, the threat may not be immediate. But it is coming and doing so at a quickening pace.
To address this, management must re-evaluate how their operations add value to customers and how they can increase the person-person touch points. These personal interactions must be done in ways that solve complex problems for consumers and anticipating needs. Note that I raise ‘complex’ problems, not ‘complicated’ problems. Landing a person on the moon is complicated; it’s not that complex. Complex problems involve a lot of human interaction, personal dynamics and people to technology interaction and can usually only be solved by humans.
Ironically, Apple has mastered this too in their Apple Stores. The ‘Genius Bar’ not only enables Apple staff to solve customer problems, it enables them to develop a relationship and better understand consumer needs at a personal level.
Today, bricks and mortar retailers need to think about how they might better leverage their physical space to build enduring relationships.
Another strategy can be to make unique offerings within store that are not available on-line.
As technology pervades our lives more and more, humanness becomes more important. Increasingly, it will set the surviving retailers apart from the dinosaurs that do not survive this Darwinian technological race.
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