Blog Post - Hugh Fletcher, Apr 3 2017

Brand vs service - What is the price for convenience?

Brand vs service - What is the price for convenience?

Hugh Fletcher, Global Head of Innovation and Consultancy at Salmon recently had a chat with Nick Easen, freelance journalist for the Times Newspaper, Raconteur supplement who was writing an article on loyalty and convenience. Here's what Hugh had to say:

1. Has there been a shift in the consumer experience environment in terms of what ‘loyalty’ means – have we moved away from brand loyalty to service loyalty? And what does this mean for businesses?

“When looking at customer experience today, it is now increasingly linked with growing a customer’s loyalty. With new technologies revolutionising the way brands interact with customers, we have seen the customer experience become progressively more important as brands use elevated experiences to differentiate themselves from competitors.

“Loyalty is not a concept made up by brands, but is instead routed in our DNA. The emotions we feel when we compare loyalty to other instincts such as care, trust and convenience ultimately manifests itself in person, online and through our devices. Thus, tapping in to what loyalty means for a customer has changed; brands will have to become more personal, but ensure they tread the fine line between overbearing and uncaring. Concepts such as Programmatic Commerce, the automatic reordering of items through IoT-connected devices, is the sort of treatment one would usually expect for a VIP; as more retailers begin to onboard this technology, it is the service and not the brand that will prevail.”

2. Has convenience trumped everything in this post-Amazon world including price? Can ultimately brand loyalty be driven by accommodating your customer, helping them make choices, reducing their effort and ease of purchasing?

“Thanks to the digital age we now live in, we are a society that craves efficiency and convenience first and foremost. Even if consumers are shopping at bricks and mortar stores, they are constantly telling us that they want the same speed, convenience and user-friendly experience that online and mobile shopping provides.

“We have seen in recent years that the wide adoption of IoT, particularly with regards to automation,could thrive tremendously in the retail space. Amazon Dash, for instance, was brought into households last year and allows you to order your favourite products with a touch of a physical button.Yet Programmatic Commerce, the idea of fully automatic reordering of items, could change the way people shop in the near future. This is where smart, connected coffee machines will be able to reorder your favourite coffee beans when supplies are running low, or similarly a washing machine can automatically purchase your detergent of choice – all without the touch of a button.

“Our recent study found that 57% of UK shoppers will be ready for fully automated purchases through IoT devices within two years. Programmatic can therefore drive a new age of shopping that is IoT-enabled, and allow retailers to feed the modern day customer who is now accustomed to a more direct, quick and convenient method of shopping.”

3. How do you create a business model that encourages loyalty through convenience? The fact is ordering dishwasher tablets is different to ordering a new iPhone. But ultimately if one company can get you both a lot quicker than another, are you likely to be loyal to the first?

“The rise of technology has only matched the shopper’s need for a more immediate, convenient and speedy shopping service. The increase of online has been driven by the ubiquity of mobile shopping, and what retailers often forget is the huge opportunity that the user’s phone, laptop and now voice interfaces offer. We are seeing more brands create their own connected virtual ecosystem for customers; with the launch of Amazon Echo, Facebook’s investment in messaging and Google branching out into the connected home. These ecosystems include ways to talk with friends, control your home’s heating or make purchases online. These services are all about owning the customer and their experience. If you own the interface, you own the customer. If you own the customer, you own the data. And if you own the data, you own the future. We can see this strategy bearing fruit at Amazon already. It has diversified its own label product offering to include groceries and baby products, as well as diversifying into streaming and content production.

“Organisations need to be aware as this lack of physical interface could mean brands become one-step removed from the customer. It could mean that customers only buy a product through an interface owned by a third party. Brands have no control over this, and the third party will probably offer myriad services to retain customers within their digital environments. This may erode their hard-fought brand equity, as customers become less loyal to brands, and more loyal to services; Amazon Prime is a good example of this phenomenon.”

4. What are the challenges and issues that retailers face when brand loyalty is confused or trumped by service loyalty?

Quite simply, loyalty to service will erode brand equity. For decades, manufacturers of all types of products, from cereals to cars, have focused on the product that they are making and the brand that they are building. This is fine when the decision-making process is based on these two variables. The consumer asks themselves which product is “best” and aligns this with which brands appeal or speak to them most. But now, a third variable – service – becomes more important. When, how and where will I get it?” often trumps what I will get?”.

For retailers, this is both a challenge and a threat. On the one hand, the erosion of brand and product loyalty makes it harder to differentiate between branded products and offers, but on the other, it’s a great opportunity for the growth in own-brand, something that the supermarkets and Amazon are all too aware of.

Retailers must also consider investment and advancement in their logistics. How do they reduce the operational cost of the last mile, while ensuring best in class service? How do they manage, pick and distribute stock from their warehouses? Predictive inventory management, hub and spoke distribution centres and innovative delivery methods are just some of the elements that retailers need to consider.

Another avenue is partnerships. Where a retailer’s logistical abilities and scale prohibit them delivering best in class service, then partnerships could be the answer. But retailers and brands should enter into these relationships with their eyes wide open. A quick solution it may be, but reliance on partners could lead to a loss of the relationship with the customer, loss of data and a loss of control of the end-to-end experience.

Undoubtedly, what is required is more investment in good service. In a world where good service is consistent, then brand and product will rise again. In a world where it is inconsistent, bad service could spell the end for some retailers.

5. When convenience is everything – where do the opportunities lie in the marketplace? Who will be the winners and ultimate losers?

When you think about convenience, you think of speed, ease and personalisation. Whatever we think of Amazon, it offers all of these elements. In a world of growing ecommerce in the West, it has become the default shop of choice– and this isn’t just a Western trend. In the East, we have witnessed the rise of Alibaba and of apps like WeChat which seek to deliver ecommerce convenience to customers. So the first winners of this new “convenience is king” world are the marketplaces.

This new power position has seen the rise in own-brands – a concept which the supermarkets have had for years, but only now are we starting to see own-brand products from the ecommerce giants, such as Amazon Basics and Amazon Baby. Own-brand is the new battleground, being fed by the data of unsuspecting brands using these marketplaces to help sell their products. As a result, the biggest losers will be the brands themselves. Investment in product and brand equity will have less return in this new world. In addition, a new world of data will lead customers to a more perfect market where brand truths will be destroyed or supported. At Salmon, we’ve called this “Democratised Data Ecommerce” (DDEC). This would utilise the Blockchain as it foundation – an unmodifiable, public ledger of data accessible by everyone.This, in turn, means that CRM and brand builders need to work even harder to ensure that their brand propositions are not only appealing, but also true. They need to create compelling reasons for customers to forego the convenience of a one-stop marketplace for the branded experience of a direct engagement with the brands.

The battle-lines have been drawn. Will loyalty to service create a more monopolised and commoditised world where the strongest brands are the tech giants? Or will the brands ability to appeal to human nature and aspiration win the day?

6. How do you move loyalty back from the brink of convenience and service towards one of brand? How do you adjust value systems in this age of ‘everything is now’?

“Brands must recognise that they cannot expect to retain customer loyalty if they do not embrace these new technologies. Kantar’s recently launched ‘Connected Life’ study only goes to show how vital it is for businesses to understand their audience, with 38% of the 70,000 surveyed saying they would allow their data to be shared with brands if they saw a reward in return. Amazon dominates its respective market by putting the consumer first, and both Amazon Dash and Echo highlight how the company is embracing internet-connected devices. Companies must not limit the possibilities and the need to introduce the necessary back-end infrastructures that allow consumers to fully benefit from IoT-connected devices. It is no longer enough to just have a strong omnichannel that offers the perfect matrimony of traditional high-street stores and online. New technologies such as virtual shopping, the connected fridge and Zero UI are creating entirely new opportunities that cannot be ignored.

“Google Home and Amazon Echo are just the beginning; businesses must invest now to thrive in the soon-to-be IoT-led world infused with Programmatic Commerce and brand new customer experiences.”