As connected technology changes the way consumers live, retailers and manufacturers must start thinking outside the box.
The connected home of tomorrow, they say, will be full of smart gadgets like internet-connected fridges that will order milk when you run out.
Except that it won’t quite be like that. This oft-cited and silly shorthand for the networked future home fails to capture the scale of change that is coming, or the risks it presents to established businesses.
The connected home will, of course, have connected devices but it won’t be fridges with a web presence that matter or toasters with an Instagram account (although that said, someone has already invented the selfie toaster). Smart gadgets will only represent a tiny part of the opportunity.
Those that adapt to the forces that are already reshaping how we all live and buy are set to profit in new ways, not least among them consumer brands, while those who don’t adapt to change, including retailers, face a potentially existential threat.
Counter-intuitively perhaps, in some cases the consumer won’t be where the value lies at all for businesses selling into our homes, and big beneficiaries could include utilities and insurers.
The change taking place now amounts to a new era. Post-Second World War, the dominant retail model has moved from independents to chain stores to multi-format to online and multi-channel.
Now a new model is emerging: the platform, says Paul Martin, KPMG in the UK’s Head of Retail. “The big picture is that more people will become part of large platform ecosystems and a larger share of their spend compared to today will go towards those ecosystems.”
These consumer platform ‘ecosystems’ operate on five pillars, says Martin:
Typically most organizations have expertise in one pillar – retailers occupy the customer pillar; the broadband and telcos, connectivity; hardware manufacturers the kit pillar.
It is a defining shift in the market that amounts to a new retail epoch, says Martin. Every player will have to establish itself as part of a platform-level proposition that serves the connected home. Occupying one pillar in isolation will no longer be enough for organizations to thrive.
Businesses will need to straddle these pillars. Those who are not platform players and who don’t act to build, buy or collaborate with others to join complementary pillars risk being disrupted, says Martin. “For the likes of certain large European grocery or home improvement retailers, I’m not sure what the evolution is after omni-channel if it isn’t platform. The question for C-level leaders is, who can provide all these different ingredients?”
Established players will have to start cooperating very soon if they are to capture the opportunities, says Curt Schacker, Senior Vice President of Connected Devices for EVRYTHNG. “Retailers absolutely have an opportunity to participate but they have to think differently from the way they do now. Selling a gadget is only a starting point for a longer-term customer relationship.
“They are still operating in very siloed worlds based on how supply chains and sales channels work. New ways to collaborate and new relationships need to be built along with new business models.”
Buying into an adjacent pillar is only an option for the most cash-rich companies, while building a new competence from scratch in another pillar poses its own risk, says Martin.
“A lot of the traditional players that have ventured into these new adjacencies have really struggled because it’s quite far removed from their core business model.”
Tesco’s acquisition of online music and film service Blinkbox in 2011 is a good example. The acquirer did not thoroughly understand the business and it ultimately failed to work.
The challenges are great, says Martin. “The complexity of doing this is manifold and a lot of businesses are hamstrung by thinking inside the box.”
Such risks means that for many the strategic choice will be to find partners, says Martin. “Collaboration will be key but in forming these partnerships there are lots of questions to answer. There will have to be ecosystems of equals, which establish who owns the customer, how to share data and what the share of revenue is.
“To collaborate, businesses are going to have to think of different ways they could operate, probably in many cases as joint ventures. The tech businesses are more enlightened about how you do this. They will invest in a business but not get involved directly.”
The possibilities are vast and examples of the model are coming thick and fast, with online companies such as Alibaba making forays into physical stores. Emerging platform businesses include luxury platform Farfetch, which sells products from over 700 global boutiques and brands.
IKEA’s recent acquisition of TaskRabbit shows a retailer which is thinking about building its business across the platform. It has also publicly declared that it is looking for other such acquisitions that will enable it to rapidly develop new competencies.
Another case of considered strategic positioning is home audio business Sonos, which has started to launch its own retail outlets and also has strength in the connectivity pillar given its capabilities with streaming music, says Martin. “It will challenge traditional high-end home entertainment.”
In this new ecosystem, brands could even become platforms in their own right and come to rely less on traditional retailers.
The various emerging subscription fashion offerings such as Trunk Club and Thread might also enable brands to increase their reach without conventional retailers. The same also applies to food offerings such as HelloFresh and Blue Apron, which could benefit from the growing ease with which consumers can set up an order in the home. “Not many are profitable today but they are starting to disrupt the grocery market, turning it from a transactional to a subscription model that is heavy on healthy eating,” says Martin.
For the more mundane consumer goods, the increasing reliance on smart home devices to help us automate our weekly shop is both a threat and an opportunity for FMCG brands.
A platform consisting of consumer home goods brands that have joined forces to bypass retailers is one way brands might utilize the connected home and the platforms that serve their occupants.
They also face a fight among themselves, however, and will compete to be the preferred items on a default shopping list that your AI-driven home ‘concierge’ will order regularly, says Rosie Picton, Associate Director at the Space Doctors brand consultancy. “This virtual fight for mindshare has big implications for retail. Buying space in supermarkets will become less of a priority.”
Shopping by voice in particular means we are more likely to request our home AI to pick up the brands we already know, posing a great opportunity for brands that make themselves memorable, but potentially threatening those who don’t get inside our heads, says Simon Gosling, Futurist at agency Unruly.
Connected appliances such as printers, which can automatically order replacement supplies, will also benefit certain brands.
“Brands now need to consider the outside world as the brand awareness experience and inside the home or the car as the point of sale. So driving down the street I might see a poster for KitKat. Traditionally, I would have to drive to the service station, now I just add it to the basket and in an hour I have it delivered,” says Gosling.
How should the traditional retailers respond? “My observation to them is that winter is coming,” says Martin. Given the rapid adoption rates of new technologies, those that move too slowly or who make the wrong moves may find their core business quickly cannibalized, he adds. “The pendulum swings at a much greater speed today.”
A quick tactical win is to ensure you make it easy for consumers to use their connected devices to reach you, says Gosling. “Tesco has made it easy for me to move my shopping list onto my [voice- controlled] device, which is a good example of what retailers need to be doing.”
Gosling also says retailers who sell connected products can do more. “People are not using voice-controlled devices to their fullest potential. Establishing ‘know-how’ counters to train shoppers in store or offering a service where you can talk to a person to set it up in your home is a big opportunity for electronics retailers.”
“Concentrating on enhancing the physical retail experience, the factors that drive people to come to your store rather than buy in the home is the other part of the competitive response,” adds Gosling.
Retailers as well as brands can also use data from devices to find the best ways to meet their customers’ needs, says Dr Mark Smith, CEO of ContactEngine, a specialist in helping automate omni-channel customer conversations. “The connected home allows you to do things like know when someone is in for a delivery or proactively let them know their energy bill is more this week than last.”
Those that work out how machines can offer rich and more personal consumer interactions are the ones that will gain the most. “You have to be sensitive with that and it has to be mutually beneficial,” says Smith.