If marketing is still a matter of getting the product, price or promotion right, then over the coming decade, the most important area of innovation will surely be where the transaction takes place. During the Seventies and Eighties we witnessed an often spectacular battle between opposing models of enterprise – public versus private. Over the coming decades, that may be replaced by an equally vast and complex struggle, this time between “supplier” and “middleman”.
The prize will be “ownership” of the customer relationship, and the site of the battle will be the distribution chain.
It is quite easy to see why. In most categories and most industries, between 30 per cent and 40 per cent of the final consumer price is accounted for by the retailer’s, or middleman’s, take. Suppliers could live with this situation when: there was nothing they could do about it; the middleman was not using his position to leverage his way into “ownership” of the customer relationship; the middleman was not claiming an increasing proportion of the total supply chain profits for himself.
Now, many suppliers are beginning to realise that they may, at last, have the means to turn the tables on retailer power.
Multimedia developments have paved the way for a formidable combination of forces. Telecoms, cable, computer hardware, software and media companies now see enormous revenue-earning potential in multimedia and its home-shopping applications. In addition, existing distribution companies, such as the Royal Mail and Post Office, mail-order companies and logistics companies, are realising that their businesses could experience exponential growth if home delivery (or greater local delivery) really took off.
In many industries innovative players are already proving that established distribution networks are not cast in stone. First Direct and Direct Line have blown apart traditional financial services distribution – and cost – structures. Direct selling of holidays and computers is growing apace. Car companies such as Daewoo are successfully eliminating dealer networks.
Now one of the world’s biggest consumer electronics companies – which must remain unnamed – has made a multibillion-pound strategic decision: over the coming decade it will eliminate the middleman, developing its own “showcase” stores and a parallel direct distribution system. The common factor is: disintermediation, whether it’s of middlemen businesses or physical places or both.
There are, of course, plenty of sceptics. At the recent Marketing Forum, Verdict director Deborah Grant dismissed speculation that virtual reality-based, home-shopping systems would ever be able to bypass existing retailers. Home shopping will double its market share, she predicted. But only from a paltry four to eight per cent. And, she estimates, it will take 15 years to do so. “Shops are a tried and tested means of bringing consumers and products together,” she declared. “Shopping from home will never dominate retailing.”
There are many good reasons for this. Massive infrastructure investments are needed to create new physical distribution systems that are both convenient and cost-effective. The mass penetration of affordable, easy-to-use interactive media (apart from the telephone) is a long way off. There remain serious question marks over the emergence of secure payment mechanisms.
In addition, techno-enthusiasts ignore the social and psychological aspects of shopping. Meeting people, going out, and using your full range of senses to shop – seeing the flesh on the meat, feeling the quality of the cloth, will remain crucial. After all, if remote shopping was going to be such a big new idea, mail order and off-page selling would have taken off a long time ago.
Yet the sceptics may be missing the point. They take for granted the very thing that is now being thrown into doubt: the shop as a unique bundle of numerous processes.
The modern retailer provides a combination of factors – a product showcase, a place for making payments, a distribution point, an opportunity for a social or leisure experience, to name a few. The big question is whether it is ripe for unbundling, and if so, how it could be rebundled into a new, commercially viable combination.
Why not, for instance, go to a fashion show (which is a product showcase plus a social occasion) but order and pay from home? Or why not have showcase and payment at one place and delivery to another – as is already the case with most white goods shopping?
As soon as the possibilities of unbundling and rebundling are considered, the potential permutations are vast. Perhaps this is why so many corporations are taking such a lively interest in once-marginal subjects such as pizza-style home delivery operations, vending machines and petrol station retailing, as well as the multimedia kiosk and the Internet.
The key issue is not the place where consumers shop from, but who they shop from. Who owns the transaction and the information it generates? In what way, and to what extent, can existing links in the distribution chain be eliminated or reconstructed in such a way that it adds value for consumers as well as cutting costs?
Retailers and other middlemen are, of course, acutely aware of such potential reform. After all, there’s no reason why they too cannot use any of the new technologies to enhance what they offer.
This is where marketing skills will be so crucial. The winners in the coming struggle will not necessarily be those with the greatest technical advantages, but those who are best at the marketing mix: who can construct the most attractive packages of price, choice, convenience, service, interest and excitement as each stage of the distribution revolution as it unfolds.
The question for the future is, are existing marketing departments the best place to find the unbundling and packaging skills companies now need?