Analysis: only innovative retailers survive this new arena

Analysis: only innovative retailers survive this new arena

Dutch ABN Amro's research team has once again brought the term "mass customisation" to the forefront in its newest research report. The term has launched business models in the 1990s, but contemporary technological advances have added a new dimension to "mass customisation", a concept that will radically change the retail branch in the years to come.

Custom-fit without added costs

Essentially, mass customisation means custom-fit solutions without any added costs. In the 1990s, Dell managed to achieve tremendous growth through a system that allowed customers to create a computer based on their own preferences. By shifting the assembly (choice of processor, memory or screen) as far back in the value chain as possible and letting the consumer decide, Dell has managed to achieve this idea of mass customisation.

 

Jeans manufacturer Levi Strauss is another well-known example, as it could create custom-fit pants based on an industrial process. 

 

Digital technology creates new business models

The current rebirth of the term mass customisation takes place in another world, thanks to digital technology which has drastically enlarged the customer's choice for custom solutions and the manufacturers' and retailers' options to offer these choices. This is exactly what ABN Amro confirms in the second part of its two-part report.

 

In part one, which was released in December 2014, ABN Amro stated the exponential technological growth would change the retail world faster in the next 10 years than it did in the previous 100. The recently released second part focuses on how that technology will influence (future) business models. Who are the Dells and Levi's of the current age? All in all, we are only talking about one of the 5 major trends the researchers have divulged in their study.

 

Share, recycle, subscribe and survey

One of the other major trends is 'peer-to-peer' sales, called sharing economy. The use of an item is more important that the possession and that creates business models revolving around the rental or trade of products: one such example is peerby.com, which uses a website and app to give members an overview of nearby items they can rent or borrow from other members.

 

Another trend is the circular economy, focusing business models on maximizing the use one may get out of a product or material. A good example is Mud Jeans, a company that tries to recycle as many cotton fiber in its products as possible. In fact, this is a hybrid with the aforementioned share economy, as Mud Jeans's Lease a Jeans formula also enables people to temporarily use the jeans, alongside the choice to buy sustainable pants.

 

Another potential path is to focus on subscription models. HelloFresh is a prime example of such a service: its customers receive a box of carefully measured ingredients every week and prepare a full week's worth of meals based on HelloFresh's recipes. "Social merchandising" is the fifth trend: a type of crowd sourcing, in which retailers use social media to survey potential customers about their preferences and then produce the most popular choices. The model is already scarcely being implemented, but the ABN Amro experts feel this business model will boom in the future.

 

Sell more services, fewer products

The question is how all of this will affect retailers and suppliers: will they have to move from selling items to renting them or will suppliers have to restructure their operations to focus on product and resource recycling?

 

In any case, most retailers certainly will offer more services instead of products. The more generic a product is and the more important its use is compared to its possession, the more likely a service will be provided. More emotional items, carrying a strong, exclusive brand tag, will suffer this fate only to a lesser extent.

 

Therefore, retailers who sell exclusive brand items will not see their turnover endangered as much as retailers who will have to compete with the share economy and service retail. Consumers will often no longer care about the product, but about services that give them access to products.

 

Food cartridges for 3D printers

New ways to gather, visualize and analyse information nowadays, supported by the power of the internet and the smartphone and tablet adoption rate have given retailers plenty of ways to create and develop new business models. New technologies like 3D printing, which could rapidly become commonplace, have expanded retailers' options. Even families can take advantage of these technological advances, although it still seems a bit premature to say to - at this moment however, technology moves very fast nowadays.

 

One company welcoming these new technologies is Dutch Albert Heijn, whose AH XL in Eindhoven (Netherlands) has a bread department which uses a chocolate paste printer. Customers can use this printer to create their own 3D chocolate-printed text. Maybe, in five years' time, everyone has such a device at home and the next successful business is a food cartridge-selling company which services your 3D printer at home...

 

New collaboration models coming up

Retail's dynamism is unparalleled and ever-present, not only thanks to technological advances but also thanks to new business models. Only innovative retailers can survive the technological battle: those who do not adapt, lose the fight.... although the authors insist that one cannot merely dismiss all current business models.

 

The comforting message is that physical stores and product sales will always be important. Retailers (particularly those in omnichannel) who want to provide services as well, will have to consider new collaboration models with other parties (manufacturers, transporting companies, online marketplaces and community members). Even though many of these models are still developing, retailers have to be on guard, the report states.

 

Click here to find out more and to download the Dutch language report, called "Technology requires retail to reconsider its business models" ("Technologie vraagt om aanpassing verdienmodel in retail").

Questions or comments? Please feel free to contact the editors


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