MarketLoop #5, June 1997

New Category Killers

Part of Through the Loop's role is to look at the emergence of new markets, services and categories as the market-place continually evolves. One of the most fundamental structural shifts that we believe will alter the face of many markets in the future is the progressive introduction of electronic commerce. Electronic commerce sounds deeply unfashionable and untrendy, but the reality is somewhat different. It will deeply affect many industries from consumer banking, various sectors of the travel industry, all forms of retailing and also many business-to-business operations. As a result, this will lead to increased consumer demands for access, convenience, choice and dialogue across a wide range of product fields and categories. There are some "category killers" which will devastate previously stable sectors.

There are some key hypotheses underlying the creation of new opportunities.

• the introduction of electronic commerce in many industries decreasing the need for large back-room processing operations, e.g. travel industry, consumer banking, other financial services such as insurance, etc.

• the expansion of electronic commerce for business-to-business and business-to-consumer sales.

• the introduction of call-centres.

• the diversification of retailing channels.

Opportunity Areas

"Rabbit and dog tracks cross the snow. Tell me timing isn't everything."

Corporate Haiku

Some of the opportunity areas which will develop or expand:

Financial services will alter the fastest in spite of much vaunted consumer apathy. First Direct in the UK has shown that consumer banking habits can change. The introduction of the Prudential Corporation telephone banking (one of the leading UK insurance companies) shows also how the discrete product category borders will change. The supermarket move into banking services will inevitably place a question mark over whether the main clearing banks should have such extensive physical presence or can they be channeled differently.

Other areas of financial services will look for new models of distribution and customer service. Which brands will be able to demonstrate credibility in this area? What is the role for financial advisors or mediators in this new environment? On-line brokers and advisors such as Motley Fool show that financial advice can work differently. Call centres allow 24-hour help and care lines to be put in place. Cross-border financial services also become a reality once regulatory issues are solved.

Small businesses will demand all the information technology functionality of big companies. This will have an impact on all elements such as software design, networks, product and service provision, payment systems and telecommunications. Who will be the small business advisor in this changing environment? Which companies and brands will have the credibility, flexibility and culture to service this increasing group? The Internet will add to small company capability. Information technology companies will be less able to set benchmarks, which apply as ultimate standards for substantial periods of time.

Traditional retailing has always relied on physical presence either in the high street or out-of-town. However, there are some product categories that can easily make the jump to electronic commerce without requiring investment in physical premises. For example, music in whatever form, computers, software, white goods, books and so on. Just look at the success of Amazon.com and the Internet Bookshop. More product fields will look at forms of electronic delivery such as greeting cards, sheet music etc. Many more new brands will emerge in this area to reach certain segments of the population. Development speed and time-to-market are dramatically altered.

Electronic commerce will expand.....to date, definitions have been too restricted and too narrow. Companies such as Cisco, Dell Computers and the two earlier examples of Amazon.com and the Internet Bookshop show that viable business can be conducted in this way.

Food retailing is shifting to using many channels including home delivery. Brands such as Peapod and the Food Ferry Company show that new models can evolve in spite of the much vaunted difficulties of home delivery. The UK supermarket, Tesco, is also experimenting with a number of formats to reach different customer segments who find difficulty shopping. These segments range from housebound people to those who just do not have enough time to shop.

Some fast food companies have already moved into the home delivery channel. Consumers will become more used to this as one of the accepted standards. Through the Loop forecasts that the quality and availability of delivered food will improve dramatically.

Delivery companies of all types could gain in this new environment as consumers seek to behave more flexibly for either their home or work environment. Rather than becoming fixed on the home as a delivery point, many other locations will be possible. "Walking the dog" could take on a new meaning as deliveries are made to the equivalents of local post offices or pubs and cafés. Those delivery companies with an excellent ground service have the opportunity to transform their businesses as they act as part of the supply chain to reach the consumer. Just-in-time delivery will take on new meaning.

The companies and the brands with the most to lose in this changing environment are those placed in intermediation and advisory functions. Without extending up and down the supply chain, or partnering other companies, their competence/ies will easily become devalued. For these reasons, the role of travel agencies could alter significantly in the future, as the shopping experience offered to consumers is not that exciting or attractive.

If there is one over-riding objective that electronic commerce has to deliver to the consumer, it is satisfaction and even delight across all elements of the purchase, consumption experience and after-sales service. To give just one example of this on a micro-scale, Haagen-Dazs has worked out a new way to deliver instant gratification to its consumers with the introduction of the Midnight Cookies n' Cream service. This will deliver Haagen-Dazs ice cream to your home in the early hours of the morning within a certain radius of London. The only boundary is company imagination in this area.

"You think you understand the situation, but what you don't understand is that the situation just changed."

As it can be seen there is not one key driver behind many of these changes although it is clear that technology is the main enabler. Consumers' needs can be shaped as they learn new ways to consume. Finding the unexploited needs becomes the key strategy. For this reason, companies cannot be sanguine about the future stability of the categories and sectors that they operate in. New brands will emerge and they will seek to develop a fuller range of attributes, as they become mature. Growing brands will demonstrate growing pains as they seek to widen their franchise. They may even start to use more mainstream techniques such as advertising! This will be a more quantitative world as feedback becomes instantaneous. Effectiveness will be easily demonstrated.

Through the Loop has been using both different ways to imagine the future in a number of product category areas. Techniques such as scenario planning can be used to develop models of the future and evaluations can then be made of the most probable path. Wild cards can be more easily understood once conventional stereotypes are altered. The way of doing business is not the same as before. Horizons will shift. The ability to "imagineer" will become more critical. The competitive set is fundamentally altering and companies too narrowly focused will fail.

Old and new companies will be looking for new business and marketing models. In this changing environment, understanding brand dynamics has never been more important. Looking for benchmarking and best practice brands can only enrich and enhance these models. Through the Loop has been building a considerable database in this area across many categories and sectors.

Summary

The development of Electronic Commerce will force considerable transformation in many current sectors and enable new category killers to emerge. It is important to watch over the horizon to understand where how forms of competition can be generated. Equally, the benchmark of performance is consumer satisfaction and delight. To date, comparatively, few brands are achieving this. Through the Loop has been collecting examples in order to generate a best practice template area.