Online shopping surged. Technology-assisted methods of intermediation, such as online shopping advisers, became more widespread. And product brands accelerated their direct engagement with consumers.
These transformations have raised customer expectations, and from now at least one rule will apply to all the industry’s segments and geographies: Average propositions will no longer work. That means retailers and consumer goods manufacturers need to figure out what they want to be known for.
Many of the transitions underway are dramatic accelerations of long-term shifts that had already been in the pipeline. We analyzed them in our report, Retail’s Revolution, along with others that will resume after the pandemic ends – such as the critical role of physical stores as places for human interaction and high-quality service. Succeeding at any of the new models will require three things: match fitness, a game plan, and the leadership to implement.
Match fitness in the digital age implies understanding your customer and being quick and agile when bringing new products and formats to market. Companies have to establish new channels and business models while still operating their core business, making it essential to focus more intensely on cost and end-to-end processes.
In the digital age, retail and consumer goods companies need detailed knowledge of their customers and end users. A key question is how to get access to data and content on their behavior and thinking. While digital tools and platforms should simplify this task, it is not easy for these to stay relevant.
To hold consumers’ attention, such platforms should offer meaningful benefits – for instance, engagement through communities, high-quality recommendations, and personalized services and offers. So retailers and brands are introducing new breeds of customer programs and private communities. To complement these, they are also listening in to the flow of content on social platforms, which provides a detailed, objective, and up-to-date picture of consumer opinion.
The speed of digital change already underway is being accelerated by the COVID-19 pandemic, which has increased uncertainty over consumer behavior and demand. To keep up, companies need to be faster and more agile in anticipating and addressing change at all consumer touch points and all stages in the supply chain.
However, it is still quite common for incumbents to run data analytics and digital engagement with customers separately from the core commercial parts of the business. This disconnect no longer works in a world where digital processes are used throughout an organization. Companies need to develop a clear picture of how the growth in consumer-related data can enhance the development of products and services and make their entire business more effective.
Building digital channels and direct-to-consumer businesses requires substantial investment in infrastructure and capabilities. To finance this, companies need to generate and increase their profits in a significant way. However, price pressures are growing, as prices are more transparent than ever. One example is the rise of platforms comparing consumer goods prices in different European markets, which creates new challenges for companies used to addressing those markets in targeted ways.
It is therefore essential to streamline costs and improve process efficiency. One effective approach is end-to-end transparency. This involves tracking costs across all departments and organizational silos – from the conception of a product to its activation; and from raw materials all the way to the shelf, whether this be digital or physical. The value chain can then be transformed through a zero-based approach: redesigning activities and resources from scratch, and focusing on what the customer really needs.
A Game Plan
Consumers’ widening range of choices in products and shopping channels make it urgent for companies to find ways to stand out. Playing to win in all dimensions of the retail and consumer products businesses is unlikely to succeed: The various aspects of the industry require different organizational focuses, which will sometimes oppose each other; trying to succeed at them all would demand unrealistic resources.
Our Retail’s Revolution report therefore suggested six models that will prosper in the new world, each based on a particular dimension of strategic control. These are paradigms, however, and most retailers and consumer product makers will likely combine elements of more than one model.
These leaders offer market‑beating products and brands with exceptional recognition. They trigger strong emotions, often by telling stories and delivering unbeatable quality or value. In many cases, product leaders aim for and achieve global scale – a path more accessible than ever given the global scale of social platforms, influencers, and marketplaces. But there is also a role for small, local producers that satisfy the growing consumer demand for products that are ethically produced with a low carbon footprint. In all cases, direct access to the consumer can help brands learn about consumer tastes, consumption patterns, and purchasing behavior.
Shopping ecosystems can become magnetic by providing a seamless, hassle‑free experience and real engagement through communities and AI-powered advice. This is usually achieved through a mix of strategies, such as personalized recommendations, one‑click payment, and same‑day delivery for members. Integration with other industries – such as health, media, and financial services – will increase the variety of such services. Constant innovation, surprise, and improvement will play a big role in keeping these platforms fresh and magnetic over time. Currently, we see a lot of focus on setting up private user communities and channels.
Choice intermediates are where consumers increasingly begin their shopping journeys to save time and money and make better decisions. Review aggregators, for example, which are popular in the travel and restaurant business, assemble high‑quality reviews and generate customized recommendations. Market mappers, such as online flight bookers, focus on products and help the consumer make sense of the available choices. The choice‑intermediary model could scale well globally, particularly in sectors with few market‑specific products, such as technology, hardline goods, and some areas of apparel.
Customer Experience Specialist
When retailers and manufacturers going direct to consumers create the best customer experience – online, in‑store, or in a combination of the two – they can become shoppers’ preferred destinations. A superior experience does not depend only on the functional aspects of a store or platform, or on leveraging customer communities. Instead, the cornerstone is often passionate front-line staff, who are strong product and brand advocates, whether in a store or via digital tools. Smart operators in this archetype empower their staff, sometimes by building systems and tools to help them readily access product and stock data to answer a shopper’s questions and offer a personalized service.
By owning the last mile, fulfillment specialists get products rapidly and cheaply from distribution centers and stores to customers. This strategy focuses on efficient, reliable, and low-cost operations, and it can fuel a product manufacturer’s own B2C business or provide a service to other businesses. The specialists build scale networks and processes that are optimized from end to end. That strength may translate into a differentiated customer offer based on low cost, great service, and reliability. It may also include real-time fulfillment tracking, the offer of frequent drops, or a network of easily accessible collection points.
Key Location Player
Making the best use of locations remains a strong strategic play for a store-based business despite a shift to digital channels and despite the recent lockdown measures and the trend towards working from home. Locations can have value by being convenient: They can consist of pickup points at commuting nodes or close to people’s homes; and they can be combined with – or close to – offices and residences that provide a pool of potential customers. Some key locations are upmarket, such as prime high streets and shopping malls. Nearby entertainment venues can draw traffic too. Location players acquire strategic control by setting up in these places and using them as a basis for a proposition and operating model that supports customer needs.
Leading The Change
The revolution in retail has arrived – and is accelerating. Preparing for it requires strong leadership: Leaders must come up with a strong vision and define bold answers and moves. Then they need to communicate their plans effectively to inspire consumers and staff alike. And they have to maintain an organization’s energy and commitment to transformation.
We were already living in a period of unprecedented change, and this has been accelerated by a black-swan event in the pandemic. There is now even greater urgency to find and implement the right solutions for the retail and consumer goods industries – and to prepare organizations for further opportunity and transformation.