Excessive technology can be counter-productive in new retail, says S.POINT

05 April 2019 Consultancy.asia

Technological advancements have in recent years opened the door to ‘new retail’ – but an overreliance on technology can be counter-productive for retailers, argues Steven Jiang, Managing Partner of Shanghai-based innovation consultancy S.POINT.

Moving beyond just a buzz-word, the ‘new retail’ business model has outright boomed in recent years, most notably driven by Chinese e-commerce giant Alibaba. Striving for the seamless integration of offline and online shopping channels, together with a mesh of big data, logistics, marketing and distribution, the emergence of new retail has been undoubtedly enabled by rapidly evolving intelligent technologies.

But, as Steven Jiang, Managing Partner and Vice President of Shanghai-based product innovation consultancy S.POINT notes, not all enterprises have the strong technological genes of Alibaba. Jiang contends as such that enterprises in the new retail space can have a tendency to over-rely on technology, with its excessive application and misapprehension of the space producing effects counter to intentions.

“Developers with a misunderstanding of new retail are over-dependent on technology and believe that technology changes and solves everything, which is an extreme obsession with technology,” states Jiang. Rather, new retailers should as a starting point consider scenarios across the shopping and buying life-cycle and the combination of human and technological elements to create a seamless customer experience.Excessive technology can be counter-productive in new retail, says S.Point“New retail should pay particular attention to the sense of balance to connect technology with customers to create a better experience – as the application of excessive technology leaves no room for the development of the relationship with customers,” says Jiang. “The key lies in the insight into customer scenarios, and only by understanding and extending scenarios for their consumers can organisations have the chance of winning new retail opportunities.”

An MBA graduate from the MIT Sloan School of Management and former consumer and industrial goods consultant with Booz & Company, Jiang was a founding member of the China Industrial Design Institute and now serves as Managing Director for S.Point, a 1997-founded Chinese consultancy and Cordence Worldwide member with offerings in consumer research, product definition & design, product delivery, go-to-market strategy, and innovation capacity building among other provisions.

With respect to his contentions on new retail, Jiang points to the modern self-serving vending machines that have emerged in the past few years, which are very advanced in terms of technology but haven’t been entirely successful – separated as they are from consumer scenarios. “Consumers will not approach technology proactively,” he says. “Only when technology is made close to customers’ needs can it find its market.”

Noting that the center of shopping has shifted from the merchandise in traditional retail to customers in new retail, Jiang concludes: “Enterprises hoping to grasp new retail should understand traditional retail from the heart – i.e. consumers see the product first, then recognise the brand, and compare prices in the end. If consumers cannot see the product or understand the product it will be very difficult to push sales . . . the key to new retail lies in creating new and more scenarios to increase the value of the merchandise.”

Profile

More news on

Insurgent FMCG brands on the rise in China at expense of incumbents

26 March 2019 Consultancy.asia

Fast moving consumer goods brands globally face increased competition as domestic incumbents pick up steam. New analysis shows that Chinese domestic incumbents are growing rapidly, focused particularly on quality products – in 2017 local incumbents saw nearly twice the whole category rate of growth. Market penetration is a key asset for incumbents.

Global fast moving consumer goods (FMCG) companies have held a dominant place in markets across the world. Major brands are sold across global markets, and have managed to penetrate deeply into consumer spending habits in some regions. However, consumer sentiment tends to be fickle, with different markets wanting different things, requiring companies to put local flair into their products – or risk losing out.

Over the past decade, international companies have been the leading players in a host of markets. However, their dominance is increasingly being challenged by local insurgents that are managing to create local flavours, understand their consumers better, and are better integrated with local policy and similar matters.

To better understand how these changes are affecting both global and local incumbents, Bain & Company recently released its ‘Local Insurgents Shake Up China’s “Two-Speed” Market’ report into shifts in demand and incumbent strength. To compile the report, the firm analysed data from Kantar Worldpanel (which has now been folded into the single Kantar brand), analysed key brands’ financial documents, and interviewed consumer products and retail industry experts.Penetration as to insurgent brands’ volume growth in China

Incumbent brands in China have been on the rise in recent decades, many having become powerful international players in their own right – such as Huawei and Lenovo – while at home, these companies have been able to leverage their local knowledge of consumer wants and expectations to create products and services that meet them, in some instances resulting in significant market share control, Chinese incumbents however remain small in the Chinese FMCG market, at around 6% of total market share.

While a small share as it stands, the incumbents are enjoying strong revenue growth. Around half of the group achieve revenues of between $100 million and $500 million, and the Bain report notes that the group is growing much faster than the category average in revenue growth yearly, with nearly 70% of the category growing at twice the whole category rate.

The segment is mainly connecting to consumers in the premium and “good enough” segments, which reflect quality over price and quality at a good price. This means that the sales that local companies make tend to be in the higher price segment. Overall the largest numbers of local competition are found in the personal care and beverages categories.Insurgent brands in China outgrow market average

Incumbents are facing the heat, with the relatively small market share of newcomers managing to siphon off 20 percent of the market’s revenue growth over the past three years across the 33 subcategories considered. In some areas, for instance juices, the insurgents have managed to unseat other brands’ long-standing share of growth – with the insurgents seeing their market share grow by $300 million while incumbents have seen it decline by $100 million. In packaged water products, the insurgents have managed to capture around a quarter of market growth between 2015-2017, boosting their overall market share to above 10 percent.

One of the driving forces behind the performances of the strongest insurgents is their ability to penetrate markets. The research points out that the brands’ value growth contribution stems in part from their ability to manage penetration, representing around 50% of their total value gain in terms of volume, while around 20% of revenue growth results from changes in selling price.

The ability to increase volume through penetration is being achieved through, among others, increasing distribution of products as well as tailoring products to meet the needs of specific, often high value, groups. The report states: “Insurgents benefit from three major external factors: digitalisation that has lowered the barriers to entry; China’s “New Retail,” which is redefining the roles of consumers, merchandise and stores; and Chinese consumers’ growing preference for products that improve their lifestyle, health and wellness.