Over the next weeks, I’ll explore a set of digital ‘megatrends’ which underlie many of the changes we see impacting the business world. I have a draft list of 7 trends but I’m hoping to receive further ideas (please comment!). This first post looks at the way that digital is accelerating the flow of value from B2C companies to consumers.
In B2C sectors, value flows over time to the consumer. Firms compete for share, and in doing so drive down price and improve service or product features. Digital is accelerating the shift of value to the consumer for four reasons:
Firstly, digital creates near perfect transparency. Consumers can now use price-comparison sites, social media and other channels to access real-time data on pricing, service levels and product performance. The data is rarely perfect, but is good enough to encourage shopping around and puts pressure on firms to reduce prices and improve service.
Secondly, digital facilitates dis-intermediation. Categories such insurance, travel and utilities have found themselves dis-intermediated by price comparison (e.g. comparethemarket), and service switching sites (e.g., uSwitch) . New intermediaries capture a share of value, but again the consumer is the real winner, gaining from keener pricing.
Thirdly, for commodity services (e.g., utilities) and products (e.g., basic banking and insurance products), consumers are making rapid decisions on mobile devices and don’t have appetite to explore myriad differentiating feature. In turn this drives simpler products, increased comparability and keener pricing.
Finally, well-funded ‘digitally native’ new entrants (e.g., Amazon) are setting a new higher bar for service and cost, putting pressure on margins in many categories.
In aggregate these trends drive value from the provider to the consumer. Consumers receive keener pricing, enhanced products and better service levels. In turn this keeps the pressure on for B2C companies to restore margins. Companies need to price competitively, increase customer loyalty, innovate products & service propositions and drive out cost (e.g., through automation). But more importantly, firms need to take some fundamental decisions. Specifically they need to decide in which businesses they can and should continue to compete vs. which businesses will become unattractive due to these trends. They need to decide where to continue to own the customer interface vs. where it will be more attractive to distribute through intermediaries. And they need to decide where to find new pockets of value (e.g., new markets or categories) to replace the value flowing to the consumer.
Look out for further Digital Megatrends soon.