Executive Thought Leadership

How Consumers Will Choose When Price Doesn't Count

Of course, price will always count with consumers. Big-box retailers such as Costco, Wal-Mart, and Home Depot have proven the advantage of offering low prices in the quest to win customers and improve the bottom line. Consolidation, economies of scale, offshoring, and outsourcing—all costcutting strategies—have been business buzzwords for several years.

However, many industries are realizing that they will soon reach the point of diminishing returns. The cost-control and productivity strategies businesses have been depending on for competitive advantage and differentiation with customers over the past several years are becoming ubiquitous across competitors. Thus these strategies will become the price of entry into markets over the next five years, according to a study called Foresight 2020 conducted by The Economist Intelligence Unit (EIU).

This shift will be most prominent in the consumer worlds of retail and consumer packaged goods (CPG). “At some point you have to go beyond price,” says Bruce Crain, senior vice president of Blyth, Inc., a $1.6-billion homedecoration company and a participant in the Foresight 2020 study. “You reach a point where it is difficult to take any more … cost out.” Dell, for example, has already reduced inventories to the level where it is operating on negative working capital.

When EIU spoke with business executives, it identified three factors that will emerge as the key differentiators for companies over the next 15 years. First, leading companies will develop intimate relationships with consumers to create the most satisfying customer experience possible at the point of sale, in delivery, and during post-sale service.

Take, for example, the listening kiosks Virgin Megastores installed in each of its outlets to give customers the experience of listening to any CD and DVD soundtrack, or viewing DVD trailers and screen shots, before they decide to purchase.

Delivering such an intimate experience for each customer starts well before the point of sale. Customer intimacy requires intimate knowledge about each customer, his or her needs, desires, buying habits, buying trends, and so on. Although intimate customer data is relatively unused in many consumer companies, it is already showing great promise. European grocer Tesco combined loyalty-card data with survey data to understand what customers were and weren’t buying and why. It discovered that young mothers were buying baby products at trusted pharmacies rather than at its stores. In response, the retailer created a program called BabyClub to dispense expert advice and targeted coupons. The result was an increase in its share of baby-product sales in the United Kingdom from 16 percent to 24 percent in just four years.

The means to collect, analyze, store, and share customer data with the people who can put it to good use exists today. Business consultants McKinsey & Company calls this an “insights network,” which helps retailers “look at the world through a number of lenses and to develop truly proprietary knowledge about customers.

With numerous partners playing integral roles in the development and delivery of the products or services that customers experience, business leaders see the need for the second factor, which is to “make the supplier buy into the whole mission of the company, not just take an order … ” according to Greg Suthern, marketing and buying director for Dreams, PLC, a U.K.-based bed manufacturer and Foresight 2020 participant. Creating the intimate experience companies desire means they need to share their knowledge about customers with their suppliers, better equipping those suppliers to innovate and personalize their offerings.

This requires a level of collaboration to which companies may not be accustomed. Think of this collaboration as a continuous network of information that flows between and among each step in the supply chain, including the customer, retailer, CPG firm, and supplier, in ways we are just beginning to conceive.

The new business solutions, skills, and tools that will make up the machine for this customer intimacy model create the need for the third factor—knowledge workers. They will provide the creativity and innovation, as well as the leadership, necessary to develop and implement business processes that take advantage of the technology tools. “Give me creativity over efficiency any day,” says Peter Brown, CEO of Flair Leisure Products and another Foresight 2020 participant. Companies that successfully differentiate will be those that promote creativity and innovation. They’ll monitor these using service audits, employ business intelligence tools for developing sales and service strategies, and revamp their recognition and compensation models. According to the business executives in the EIU study, honed management and interpersonal skills will be the most important over the next 15 years.

Look at the consumer businesses that are succeeding today on their cost-cutting strategies. Then picture the ones that will be on top in the year 2020. The winners will be the organizations that, although they still consider cost, have forged intimate relationships with their customers, incorporated suppliers into their business knowledge and data streams using collaborative skills and tools, and promote creativity and innovation from their new base of knowledge workers.

Learn More Visit cisco.com/go/foresight2020 to learn more about the Foresight 2020 report, based on research conducted by the Economist Intelligence Unit and sponsored by Cisco.