Senior Research Analyst, IDC Manufacturing Insights
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Senior Research Analyst, IDC Financial Insights
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In today’s digital economy, companies are increasingly recognizing the importance of delivering an experience that makes them stand out from their competition.
According to IDC’s European Vertical Markets Survey 2018-2019, 46% of European companies ranked customer experience as their top business priority for this year.
There is significant opportunity to disrupt a competitor or gain market share in an industry by becoming customer-focused and deploying a direct-to-consumer (D2C) model or partnering with relevant stakeholders in the wider ecosystem.
Consumer-facing brands in particular are investing in direct sales by beefing up their ecommerce sites and opening stores that act as a physical extension, such as Amazon Books or sports apparel company Under Armor, which generates approximately 35% of its revenue from direct-to-consumer operations.
Focusing on customer experience may well be the single most important investment a company can make in today’s competitive business climate.
For one, it helps organizations addressing a new generation of customer that is more demanding than ever. With the rise of mobile and social, customers have a voice that can directly impact a brand, and they will not hold back if they have had an unsatisfactory experience. Today’s consumer will want everything now, at the click of a button, customized, with discount options, the assurance that they can return the purchase if it doesn’t meet expectations (customer service), and perhaps most importantly, the expectation that it can be delivered the next day, if not earlier.
Another advantage of engaging the customer directly or through non-traditional ecosystem players is the opportunity for new revenue generation. In fact, direct engagement allows brands to receive real-time product feedback from their customers and collect other valuable data, including behavioral patterns and preferences, which in turn helps to improve the customer journey and allows the targeting of customers with more personalized products or services.
D2C is still a new frontier for many companies, and in most cases it requires looking at the business in a whole new way, rather than just making new technology investments. However, there are some interesting cases emerging already across industries in D2C and other models involving wider ecosystem partners, including in manufacturing, retail, and insurance. Here are some industry examples which demonstrate how companies compete for customer attention through business model transformation.
Adidas Shapes the Future of Customer Experience by Re-localizing its Manufacturing Process
To respond quickly to customers’ demand for personalized footwear, German sportswear manufacturer Adidas set up two state-of-the-art factories called the Speedfactory — one at the Adidas HQ in Germany and the other in Atlanta, Georgia. These factories are nearly fully automated, operating on a mix of 3D printing, robotics, and computerized knitting. With this production overhaul, Adidas no longer operates on a traditional supply chain model that relies on manual production in Asia, where most Adidas shoes are made across a network of factories. Instead, the localized approach concentrates the sneaker-production process in a single space and in the market where the shoes are sold.
Enabled by the Speedfactory, Adidas was able to launch localized shoe design, such as the AM4LDN, which is creating unique shoes for individual cities, tailored to meet the needs of its residents. For instance, Londoners wanted a reflective shoe, with an extra grippy outsole to deal with the grey London drizzle. The sneakers have near-field communication (NFC) chips embedded, allowing customers to access original content in the Adidas app. However, the chips also deliver valuable data to Adidas, allowing the manufacturer to improve and customize their shoes continuously.
Typically, it takes Adidas 12–18 months to take a shoe from concept to store. Just one style of shoes relies upon several factories across Asia. The Speedfactory has changed all that, taking production down from months to a single day. Adidas also saw a 28% net sales share increase from speed-enabled products in 2017.
Another outcome of the Speedfactory is the Adidas Glitch football (soccer) boot. The boot consists of an inner sole, which is custom made to fit the shape of any foot, and an outer shell, which is interchangeable at any time, and once ordered will be hand delivered within only four hours. But again, this highly tailored, mass-produced product requires leveraging next-generation smart manufacturing principles.
Travelers and Amazon Launch a New Partnership to Deliver Value-centric Experiences.
Traditional sectors such as insurance are starting to respond to the changing expectations of their customers by exploring cross-industry partnerships. Insurance products typically address specific coverage needs and products are priced based on associated risks. Customers now expect value beyond standard coverage and services to stay loyal. They also expect value-added offerings (e.g., loyalty discounts) to be tailored to their specific needs and circumstances. Insurers are waking up to the fact that delivering contextual, holistic, and value-centric experiences that address policyholders’ specific needs and preferences is vital to thrive in the digital era and build brand loyalty. This is possible only through partnering with wider ecosystem stakeholders (e.g., with retailers to offer loyalty discounts; with media houses to offer infotainment services for risk prevention; with fitness clinics to promote active lifestyles).
One example is the collaboration between Amazon and Travelers insurance. Under the partnership, the insurer will offer smart home kits (security cameras, water sensors, motion detectors, and a wireless hub), as well as insurance and risk management information via a “digital storefront” at Amazon.com/Travelers. Insured customers can get a discount on their home insurance and receive a free Amazon Echo Dot. The solution aims to extend the insurer’s lead in risk expertise and provide great experiences for customers and agents, also leveraging interactive conversational speech technologies (with Amazon Alexa skills developed for Travelers) that enables new ways to interact.
The discounts and free Amazon Echo Dot were available to Travelers home insurance customers in only 3 U.S. states at launch, but 11 more states were added soon after. Travelers plans to continue to build upon the initial momentum and expand further.
Customer-Experience-Based Business Models are the future of the enterprises requiring increasingly contextual information and more advanced technologies to transform data into actionable insights.
The IDC European CX Practice has identified three key aspects that are supporting these new business models: Consent, Conversations, Customer Journeys.