Digital Dilemma: The other ‘E’ word
In April we explored the metaphor of a vise to describe the impact of the Internet on (once) traditional supply chains. Is there any hope for “middle-men” to bring value to markets squeezed by “online commoditization?” Ever the optimist, I say yes.
A key element of the commoditization
process is removal of the human element—ideally, reducing the sales interaction to something like doing business with a vending machine. When goods become ubiquitous, the point of sale experience is limited to “you want it/I have it/this is the price.”
In that kind of environment, there is little value add anyone can bring to the supply chain, other than logistical efficiency. A good marketer could take advantage of supply variations and manage demand to affect price. But incremental efficiency improvement is pretty much the limit of what middlemen can do to enhance commodity goods.
At the end of the chain, the retailer becomes the virtual equivalent of a vending machine. In a recent Inc post, Ilan Mochari illuminated how employment of the (digital) technologies known as the “Internet of things” could someday eliminate human interaction at the point of sale. With the aid of things like RFID tags, various forms of shopper identification and in-store sensors consumers will simply walk in, collect what’s wanted and walk out. No human interaction required. Imagine buying a high-end projector and screen that way!
There was a time when the majority of consumers were able to make the distinction between commodity goods and highly differentiated products. But in recent decades, producers of goods and market-share-focused retailers have come to believe the best way to motivate a customer to buy is via price reductions. This mentality has clouded the
I’m truly surprised at how gullible we are. As a consumer, don’t you find it somewhat insulting? Fortunately, we see glimpses of efforts to “re-humanize” the retail experience. True, some hardcore value add merchants have hung on. But interestingly, the movement is now apparently taking root in the camps of the electronics manufacturers. We are seeing weekly announcements of vendors establishing store-within-store and free-standing dedicated brand store initiatives. Why? Perhaps thanks to Apple, they’re apparently beginning to understand the foundation of their brands is trust.
Brands need to differentiate to survive. They’ve figured that out, if they don’t want their products commoditized; they can’t rely on big box and online partners to manage the consumers’ experience of their brand.
The experience is what’s important, right? Back in the late 90s, we started hearing about the “The Experience Economy” from pundits B. Joseph Pine II and James H. Gilmore. The roots of the concept can be found in the earlier works of Alvin Toffler via his book Future Shock, published in 1971, and The Experience Society by German sociologist Gerhard Schulze in ’95. Many of us with backgrounds in “specialty electronics retailing” practiced the concept as far back as the 60s and 70s, without evening knowing it had a name. But we also understood the kind of success that leads to an ongoing relationship with the customer went deeper than the in-store experience. We understood our customer base was not infinite.
We needed to create motivations—beyond replacement of failed product—for our customers to upgrade. At the time, specialty audio and video dealers knew that the opportunity to relive their initial in-store experience isn’t enough to bring them back. This hasn’t really changed. For a specialist to thrive, a meaningful portion of first-time customers need to become converts. An enthusiast is a habitual customer. Experience can make the first sale. But enthusiasm is the truly powerful E word. Enthusiasm is what doesn’t just sustain. It grows business in the marketplace (even one that has been shrinking—consider vinyl LPs) of differentiated goods.
Yes, there are audio and video enthusiasts to be found today. Witness the continued presence of publications like Stereophile and The Absolute Sound. We can also see evidence in the proliferation of online newsletters and blogs, as well as the growing presence of high-end consumer audio shows.
But while the ranks of enthusiasts appear to be expanding, the growth is incremental. We are a very far cry from the heady days of specialty audio in the 70s and 80s or the home theater/custom install boom of the 90s. Other product categories—some closely related to ours—have managed to maintain and sustain a strong base of enthusiasts. We could delve into why our industry underwent, allowed or even promoted the commoditization of a market once dominated by highly differentiated goods.
The optimist in me drives me to look on the bright side. So, rather than beat ourselves up over what we may have done wrong, next time we’ll begin to explore what merchants in other markets have done to create and sustain an enthusiastic customer base. •