What is Our Differentiating Definition of Product?

Another Inflection Point

Of all the market transitions hitting the developed world retail industry these days, perhaps the one that will require the greatest industry change – and have the most defining competitive impact – will be the redefinition of product.

For a handful of industry leaders, it’s a key component of today’s competitive strategy.

For most others – consumed, as they are, by omni-channel integration and digital strategies and mountains of data – it seems to be a bridge too far.

At the heart of this issue is an all-too-familiar reality: physical products – at nearly all price points and in nearly all segments – have been commoditized.

It’s happened for several reasons. Private label goods offer equal performance at lesser price. Global sourcing enables the immediate copying and delivery (at volume) of hot trends. The internet brings a searing transparency of price and specifications. The quality gaps between good, better and best have been slimmed, even erased.

And whether or not multiple retailers have the same brand and SKU, many have the same category . . . and dozens have the same look.

The results of this commoditization are seen in average selling prices. In regular-price sell-through percentages. In the depth of markdowns it takes to clear.

A retailer can no longer merchandise his or her way through today’s competitive battles.

That is, with increasingly commoditized physical SKUs.

But there is an alternative: the rise of services in retail and the services-led redefinition of product.

As we look ahead, the operative definition of product will be a curated assortment of goods and services.

Using data-driven unique insights into customer behavior, merchants will create value through:

• SKU delivery and subscription services – of everything that’s needed regularly, from milk to diapers to the moss control and bark chips I order every March;
• SKU usage education – seminars, lessons, even tours on topics ranging from fashion advice to consumer electronics to food;
• Health and family wellness services – and not only for pharmacies, but for grocery and mass merchandising;
• So-called “federated” services with other brands – not only your winter-in-Florida outfit, but your flight, resort hotel and starred-restaurant reservations;
• Home management services – ranging from care to repair.

Some services will be a means of locking in user loyalty. Others will create new revenue streams.

And it will be through this value-added approach to retailing that brands will survive and ultimately thrive.

It’s no surprise that Amazon has already figured this out. Case in point: Amazon Prime. This is a stunning success.

In 2013, Prime’s renewal rate was a remarkable 82%.¹ In the fourth quarter of 2014, Prime had 40 million US members. A report released in January by Consumer Intelligence Research Partners found that Prime members spend, on average, $1,500 on Amazon, compared to $625 per year for non-members. Prime members also shop 50% more frequently than non-members.²

How does Amazon Prime bind shoppers to its brand so effectively? At the heart are the services that bind shoppers to the brand. The best example I know is their automatic deliveries of diapers in the right size as a baby grows. Think of it. No more late-night runs to the store.

And read that again: no late-night runs to the store.

Brilliant.

OK, so what does this mean to the technology community? Why should the digerati care?

First of all, this service creation thing is not going to be easy. Shaping the offer is not going to be easy. Monetizing is not going to be easy.

It’s going to require deep, unique, tested insight into shopper behavior. Into your brand’s cohorts and personas. Into finding the leading indicators of need and demand.

At the foundation of this is Big Data. And moving well beyond Big Data. Into the data analysis worlds inhabited by the leaders.

Second of all, the delivery of the content that will enable the delivery of services will not be easy. This is going to be about enterprise architecture and data architecture and APIs that open data to the outside world and APIs that are accessed to bring the outside world inside.

And third of all, the staffing and training and delivering services will not be easy. Those who deliver services – and this will be a people business – will be on the go. Not tethered to an aisle or a department or a check stand.

The business processes of delivery will no doubt need a highly advanced level of mobile access to information and ease of use.

The redefinition of product? Quite honestly, it’s a redefinition of retail.

Get ready. It’s coming.

¹ Forbes, 2014, Kantar Research 2014.

² Consumer Intelligence Research Partners, January 2015.

*Other Names and brands may be claimed as the property of others.