The race to be king of home shopping is suddenly hotting up. Last week, Tesco claimed (to hoots of derision among its rivals) that its home shopping operations are already profitable, and confirmed its decision to press ahead with a rapid expansion of the service. Somerfield is committed to offering a fully fledged, national home-shopping service through the interactive TV platform Open, while Iceland is upping the competitive heat by making its home delivery service free. Sainsbury’s, which earlier this year cut back on the number of stores offering home delivery, is investing in what it claims will be Europe’s biggest, dedicated picking warehouse. Sainsbury’s hopes that when this facility comes on stream next year, it will leapfrog its home shopping competitors.
Further afield, Royal Ahold chief executive Cees van der Hoeven last week told the Gottlieb Duttweiler Institute in Zurich that after 15 years of experimenting with home delivery, its subsidiary Albert Heijn, the Dutch grocery market leader, has at last cracked the economics and moved into the black.
In the US, the industry waits with baited breath for Wal-Mart’s imminent launch of its home shopping Website, backed by no less than a reported $100m (£62.5m) worth of infrastructure investment plus a joint venture with distribution supremo Fingerhut. Many suspect that at least some aspects of the service will be global: just wait for the “rip-off Britain” stories if Wal-Mart starts selling power tools in the UK, at US prices, through this Website.
For retailers, the implications of a sustained shift to home shopping are mindbogglingly huge. But the reverberations will spread to every marketer and every market. Marketing’s sleeping giant, the long neglected third force of consumer time, is waking up.
Marketers have long known about the first two forces. Most successful offers win on two fronts: the satisfaction and benefits delivered by the product or service in question, and its price. But this does not take account of consumersÃ logistics or process costs, the things they have to do to actually experience these benefits – such as install software and pore through software manuals, or invest time, money and hassle going shopping for ingredients or doing the cooking.
When marketers address this arena, it tends to be as a bit part extra. “Convenience” has been seen as just one of many possible features that may be used to add extra value to the core product or service. In this way its true significance has been overlooked.
In fact, what a product or service actually costs a consumer can be a lot greater than the money price they pay. The cost of eating, for example, includes the time, money and effort spent on shopping, cooking, washing dishes and so on. And, naturally, consumers tend to judge the value of a product or service in relation to this total cost, not just on the basis of the money that happens to change hands.
This value gap – “between total cost and price” can be frighteningly large. Marketers have shown themselves to be peculiarly unconcerned. For one very simple and straightforward reason. It doesn’t impinge on their financials.
It’s incredibly easy to take something for granted if you don’t have to pay for it. Because companies never have to pay for it, the time and money consumers invest in processes like shopping has zero impact on return on capital calculations, profits and losses, or pricing strategy decisions. But what would happen if, say, consumer shopping time as well as advertising media time was a chargeable cost?
The move to home shopping is effectively, making consumer time chargeable. The more companies offer services like home shopping the more they are positively educating consumers to place a much more explicit value on their own logistics and process costs: to look out for that value gap, wherever it occurs.
This is opening up huge opportunities – for those marketers able to address them. The challenge for grocers is that home shopping generates potentially gigantic costs. That’s why they are so busy rethinking their operations, from scratch. The trick in these situations is to find a way to save not only consumersÃ time, money or hassle by changing the things they do, but simultaneously to reform your own processes so that both sides can benefit – a sort of win-win mutual process re-engineering.
Whenever traditional consumer/supplier divisions of labour have been successfully renegotiated in this way, entire industries have been transformed.
In the late 19th century for example Clemens and August Brenninkmeyer (the C and A of today’s C&A) used emerging mass production technologies to offer pre-tailored clothes – a huge saving of time and trouble for their customers and the beginnings of the modern clothing industry. Packaged holiday pioneers slashed prices – and angst – for holiday makers by organising flights, hotels and hotel transfers collectively, on the customer’s behalf.
Today, the Big Idea in e-commerce is self-service: get customers to process transactions online and work, unpaid, for the company. The win for customers lies in improved access, control and lower prices. The win for the company is a revolutionised cost-base.
Self-service was also the big idea in retail 30 years ago. It created a lower cost-base for the retailer and a faster, easier, cheaper experience for the shopper. Today, the retail trend is in the opposite direction, with consumers outsourcing shopping to retailers and cooking to fast food outfits: however traditional consumer/supplier divisions of labour are reorganised, if it delivers a win-win benefit it will triumph.
In business-to-business, marketing’s sleeping giant has been awake for some time. Competition has been transformed as companies focus increasingly on total solution costs: service, repair and maintenance contracts, turnkey projects, the outsourcing of non-core processes. Business-to-business marketers know that addressing the gap between customersÃ total cost and price is critical. Consumer marketers can no longer afford to ignore that value gap either.
Alan Mitchell’s e-mail is firstname.lastname@example.org