Open Innovation Strategy
Innovation has in the past come from within the four walls of a company. Most companies are now facing diminishing returns from internal R&D. Leaders like P&G have put in place open innovation strategies that leverage global networks of institutions and individuals to find solutions to well-defined problems. This radical model of innovation produces more than 35% of the company’s innovations and billions of dollars in revenue.
I think the Consumer Products industry shall require the ability to do sophisticated data analysis on the fly and to respond locally and competitively, while providing global visibility and economies of scale. With technological advances it will be possible for Manufacturer and Retailer to collaboratively customize the offering. In the past customization has been thought to be costly and hard to control, therefore it has not been attempted widely in a large global scale. Customization has several dimensions and very often not all of these are controlled by a single player. When attempted independently by Manufacturer or Retailer, customization is not likely to yield the best results. If products developed for one particular segment pile up in a location where another segment is dominant, it results in lost opportunities for both manufacturer and retailer. Leading retailers such as Wal-Mart have embarked on customization with the store of the community strategy. The Retail Link data provided by Wal-Mart can help manufacturers respond to consumer demand, as well as develop new products and services. Economies of scale are currently achieved when Customization is done at a store cluster level. Customization of the offering includes rolling out special pricing and promotions, as well as fine tuning planograms to match assortments to each stores demand patterns. Location parameters would include the geodemographics of the local community as well as critical data such as proximity to a large competitor. Time buckets imply broad themes such as holiday seasons as well as local themes such as a football game on Friday night.
Targeting Lifestyle Segments
Best Buy has been analysing lots of data and figuring out which consumer segments are most profitable. This is not unique in isolation, but then the next step is what makes this analysis commendable. Each store shall now be aligned to target a special lifestyle segment of consumers such as affluent tech enthusiasts, busy sub-urban moms etc. Store employees are put in hands-on customer learning environments in the retail stores. This consumer centric innovation strategy helps test out the incremental impact of new propositions much earlier and reduces new product failures.
Multiple consumer profiles inside the same consumer
Consumers are increasingly fragmenting their shopping trips to get more value. Smart Manufacturers and Retailers realize that consumer purchasing patterns can vary not just by segment but also by purchase occasion. The same consumer can behave differently on different purchase occasions, almost as if there are multiple markets hiding inside the same consumer! The purchasing pattern of a consumer when travelling on business can be markedly different when he or she travels for leisure. The challenge for Manufacturers and Retailers is to quickly learn and grow from the multiple markets residing inside the same consumers. Loyalty cards have helped retailers keep track of different profiles inside the same consumer. Sharing these insights with the manufacturer can lead to product and channel innovation.
Sharing insight across multiple formats
Smart retailers have launched multiple formats. These can not only address new consumers but also address the varying needs of the same consumers and keep them loyal, rather than lose them based on their different purchase occasions. Multiple formats can indeed lead to higher growth and profitability. For example Tesco has created five food formats: Tesco Superstore, a traditional grocery store for weekly suburban shopping, Tesco Extra, a one-stop hypermarket for large shopping trips, Tesco Metro, a smaller supermarket for customers in high-density urban areas, Tesco Express, a tiny convenience store tailored to quick trips in local neighbourhoods, and Tesco.com for Web shoppers. Sharing of knowledge across formats can lead to greater consumer insight as well as reduced supply costs, higher growth and profitability. New technologies can help manufacturers and retailers gain valuable consumer insight across multiple channels and formats while retaining brand loyalty.
One platform for Consumer Insight
Leading manufacturers and retailers are building sophisticated information systems to draw consumer insight from many sources such as POS data, loyalty cards, consumer surveys, Internet sales data, as well as syndicated data from the likes of AC Nielsen and IRI. The objective of these investments is not just short-term replenishment of shelves to reduce OOS, but to aim for the real payoff which might come from discovering new demand trends that could trigger product innovation. The industry needs a Collaboration Platform for Business Innovation. This is needed to support a responsive business as well as foster innovation driven by the consumer. It needs to be flexible and easy to adopt for by suppliers, manufacturers, retailers and service providers alike. This platform would capture consumer buying behaviour quickly at the local store level and provide insight to the entire supply network, to not just match demand with supply, but also support the creation of new and profitable products. A combination of applications and technologies orchestrated on this unified platform for Consumer Business could usher in the next wave of growth for the Consumer industries.