Competing in a Connected Economy

Digital Business Strategy & Innovation

The Age of a Connected Economy

During the industrial age we learned to mass-produce things. Then came the quality movement where we made things work more reliably. Now, as the economy becomes connected, we make things that work together.

A digitally connected economy opens up new sources of value while generating enormous opportunities for growth. But, competing in a connected economy requires a new way of thinking to fully tap its potential.

The trend

For 500 years, the economy has operated largely as an exchange of products designed for a single purpose, to be consumed in a physical world. But in a digital economy, one that is increasingly connected, buyers derive a higher value from products and services that digitally interact with each other. This interaction occurs as products generate and exchange data about how they are used (and the context in which they are consumed). All of this new data consumption creates an economic resource that brands are using to generate new sources of value and growth.

Five Big Opportunities for Growth and Business Advantage

For the first time in history, the ways products are consumed and experienced is digitally visible. This newly generated information, or consumption data, unleashes a new economic resource for both buyers and brands. 

The connected economy, which derives even more fuel from the Internet of Things movement, changes the relationships between a brand and its customers. When a brand has deeper insight into how its customers consume its products, it has opportunity to add more value such as advising buyers when they are short on milk or helping them design a grocery list high in protein and fiber, low on fats. 

Data generated by other products, even those of competitors, also creates value-add opportunities, making the connected economy the next California Gold Rush.

Let’s take a closer look at several new growth opportunities emerging from connectivity:

1. In a connected economy, products become multipurpose

Devices such as FitBit and the iWatch don’t just tell time, they interact with other brands (e.g., MyFitnessPal) migrating the watch from a teller of time to a monitor of one’s health. How you use your automobile can be captured and sent to your insurance company to inform how much you pay for insurance. A button on your washing machine connects it to the retailer that sells your favorite detergent. Smart phones now outsell digital cameras 6:1. 

As devices become multipurpose, they also develop a new asset – a dataset of personal behavior unlike what has existed in the past. This data can fuel much more than the direct integrations. Stitching this data asset together with other points of capture and using it in innovative ways will be the connected economy of the future. 

For example, data from FitBit and Jawbone pinpointed the epicenter of the August 2014 Napa earthquake by analyzing its users’ degrees of sleep interruption. Smartphone apps such as Mole Detect Pro, provide users with a remote professional diagnosis within 24 hours for skin cancer, by analyzing user-submitted pictures, then applying an advanced algorithm to grade the probability of melanoma.

Earthquake Effect Data by Jawbone.
“How the Napa Earthquake Affected Bay Area Sleepers” Source: Jawbone

2. Buyers customize their own products

In a digital connected economy, opportunities for personalization go far beyond fine tuning marketing communications to the buyer’s preferences. We are in an era where buyers themselves are customizing products to their liking. 

Co-creating a product for a market-of-one sounds futuristic for many brands, but in fact this represents a trend that has existed for years. For example, NIKEiD’s service lets buyers customize their shoes by designing them from scratch to maximize performance or by simply adding a personal touch. Consider the smart phone which is delivered as a basic, multifunctional device which one customizes with personal apps, ring tones, skins and other personal preferences to make it a personal expression of one’s identity and personality. 

Or consider Google’s Project Ara set to launch in 2016 which is comprised of customizable modular components. Add 3D printing, and you have a coming era of extreme personalization. In fact, many economists declare personalization as the single, most impactful economic phenomenaof the digital age. 

3. Marketers have new tools to avoid commoditization

At its most fundamental level, value is quantified by the performance a product delivers at a specific price (also known as the price/performance ratio). When products of a similar price and performance are difficult to distinguish they become commodities. Until now, marketers have added things like service to break from commodity status. Though many of these services might be marketed as personal, they are actually modeled for mass-market consumption. 

The data collected in real-time across digital properties and by products and services has led to experience customization to increase the relevancy and value derived. As information is given up and a data trail left behind, consumers have an expectation of this personalized experience. 

In a connected economy, the buyer’s personal consumption data becomes a value differentiating attribute (see Table below) by making service uniquely personal.

Mass Market vs. Individual Consumption Chart.

The pairing of database services to physical experiences is everywhere. Disney for example, gives patrons its MagicBand, a simple wristwatch that guides users through the park, showing which rides are free now, which have longer lines, where to eat, shop and find nearby rest areas. If you’re wearing your Disney MagicBand and you’ve made a restaurant reservation, a host will greet you by name when you arrive. If you’ve preordered your food, it’s waiting for you at your table. A simple wave of the band automatically charges your credit card. Data from the MagicBand also provides advice for how to enjoy the park even more, based on your behavior, ratings of various activities and consumption patterns. Given its success, cruise lines and amusement parks everywhere are adopting similar models.

Connected Technology for Children.

4. Brands become trusted advisors

The digitization of both products and the capture of data that gives insight into how those products are consumed, creates a mountain of data marketers can leverage to advise buyers. For many, the opportunity to enter the advice business represents a newfound capability (consider the appliance manufacturer who never knew exactly how you used its product until it needed service; or never had any clue you were shopping for an alternate brand until it was too late). 

Modern marketers think of usage data as a way to garner loyalty, offering customers advice in how to prolong the use of their purchases, or make them perform more optimally. This type of usage data can also be used to make inventory management and fulfillment more efficient by forecasting demand. The resulting cost savings to consumers becomes an irresistible part of the brand experience. Much of this happens behind the scenes, serving up the most relevant content and experience based on usage, behavior and audience profiles without any handraising from the consumer. This enhanced experience raises the perception of brands in becoming trusted advisors.

The data you gather about customer behavior, especially how buyers use your products (and other connected products with data plugins) is now the new currency as buyers freely tell us who and where they are, what they will need, what they are doing and who they are doing it with. ZocDoc pairs doctor appointments that are cancelled at the last minute with those requiring immediate care. Prior to digital, the time and productivity from cancelled appointments were lost forever. Now, marketers give consumers advice based on access to that which was once hidden. 

While usage data is a perfect opportunity to use advice as a tool to upsell your customer, leverage it first to give your buyers advice and insight into how they can improve the value of purchases they have already made. This will establish a strong trust and value exchange, ultimately leading to high LTV. 

Nike has been particularly masterful at such an approach that others can use as an example. Nike recently launched its Genealogy of Innovation – an immersive digital experience that highlights 40 years of Nike design, 30 years of sneaker culture and 20 years of Nike Football. These types of experiences let visitors dive into Nike’s archives to discover what inspired its many innovative designs.

Nike Connected Experience Example.

5. Creative partnerships open up even more opportunity

There are many audience intelligence, customization and connectivity partners that connect via APIs to power the most innovative disruptive work. From awareness and marketing acquisition to site, DOOH properties and even within products, partners enable the data flow and intelligent experiences.

A typical connected experience today may have a social integration with Instagram or Facebook, data being fed from providers such as Blue Kai or Acxiom and run through a DMP with content pulled from a CMS, personalized using algorithms written in R, technology to display personalized variants from Adobe Target, Monetate or Flashtalking and intelligence added by IBM’s Watson.

Leveraging these technology partners is essential for a connected experience. However, given the rapid growth in the industry there are many companies offering similar and overlapping services, so it is key to find the right mix of partners.

The Time is Now

Supplementing physical experiences with the individual’s consumption data (that was once invisible) is a trend we expect to gain momentum in every sector, from the athletic apparel manufacturer to the automotive company’s use of telematics. 

Laggards will shy away from this trend if it threatens existing revenue streams and the status quo. Emerging organizational strategies help ease the threat by using some guiding principles.

Adopt a bimodal operation

Many organizations think of transformation as a bimodal operation; one mode realigns the legacy business to an altered marketplace. A second mode works to develop brand new sources of growth through a parallel startup business unit or service line, relieved of legacy processes and practices that could unintentionally slow the launch of a new innovative business. 

The New York Times and Reuters for example, adopted such a model to disrupt their own business models so as not to be out innovated by more agile startups. Both organizations now derive at least half of their revenues from their internal digital startups inspired by a reimagined customer experience. Techniques from these parallel digital businesses are now being slowly introduced into their legacy models leading both organizations to become robust digital firms. 

Audi took a similar path, innovating its legacy, brick-and-mortar dealers with digital tools, while in parallel inventing a completely new way of buying a car with a virtual dealer-in-a-briefcase that travels to urban centers, far from its traditional suburban outposts. These virtual dealers, known as Audi City, let buyers configure their dream car onto a touchscreen tabletop, then throw its lifesize image onto an ordinary wall where they can look inside, view the interior from all angles, then modify its configuration in seconds, while instantly viewing impact on price and availability. Tools from Audi City are becoming integral to its traditional brick-and-mortar dealers as the organization converges into a true digical (digital plus physical) business. 

Xerox has repositioned its core business with copiers that are technically advanced and less expensive to operate while simultaneously launching a digital document management service unit for large enterprise customers. Nike sells performance running shoes and clothing, while its Fuelband digital services unit uses consumption data to help customers improve their athletic performance. 

As the digital economy marches relentlessly forward, brands will have little choice but to expand their value propositions with connectivity. The bimodal operation provides a way forward. 

Get inspiration outside your sector

Most marketers are trained to analyze their offerings against those offered by competitors in their home sector. This fashion of competitive analysis closes our eyes however, to innovation and ideas that are right in front of us. Think about how the customer examples we’ve reviewed could inspire similar solutions for connectivity in your own business. Every marketer participates in a large ecosystem, but in an economy where digital technologies create consumption data and data about how products interact with each other, the ecosystem becomes more structured and easier to access.

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