Connected Product Experts: How Consumer Brands Can Build A Smarter Product
Curt Schacker and Ryan McManus from EVRYTHNG discuss how just-in-time replenishment is creating a new competition for subscription models
In July 2016, the consumer packaged goods industry was rocked by one of the biggest tech deals of the year: Unilever’s $1 billion acquisition of Dollar Shave Club and its 3.2 million subscribers. By comparison, when P&G purchased Gillette in 2005 for $57 billion, Gillette employed nearly 30,000 people and was the world’s dominant razor company. With its digitally-native business model, including new advertising approaches, digital distribution, and low-cost sales, and only 190 people on staff, Dollar Shave Club’s value per employee was 270% higher than Gillette’s, based on deal price and number of employees.
Dollar Shave Club’s e-commerce Cinderella story was the deal that, according to The New York Times, would be leaving every company in the world “afraid, very afraid.” Perhaps there truly was cause for concern. In the past five years, large brands have lost share to small brands in 42 of the top 54 most relevant food categories. Meanwhile, Dollar Shave Club has snapped up approximately 16 percent of the U.S. cartridge share.
As CPG companies like Unilever and P&G aim to avoid disruption and hold their ground, it’s time to consider a new business model, born from the parallel emergence of two related trends in IoT: connected devices and smart packaged products. The range of devices has expanded to include coffee makers, washing machines, toothbrushes, razors, and a vast array of other connectable devices. At the same time, corresponding replenishments such as coffee pods, toothbrush heads, and razor blades now feature connected intelligence through smart packaging, allowing entirely new product-as-a-service opportunities.
Consumer goods companies have undergone multiple digital evolutions, and e-commerce specifically has evolved through three distinct iterations, each with increasing consumer value but attendant risks to consumer experience, loyalty, and brands’ competitive advantage:
It’s the original and still most widely employed e-commerce model. You’re out of diapers, so you go to an app or a website to order more. Here, the brand is exposed because the customer is not locked into any particular brand, making it easy to switch at any time; e-commerce providers capture all of the consumer data and part of the margin; and the brand depends on traditional marketing to drive replenishment. Or worse, let’s say consumers are supposed to change their connected toothbrush head every month but have lost track of time or can’t be bothered—the brand loses out on the very refill volume strategy that motivated their foray into connected devices.
While perhaps convenient, ideas like Amazon’s Dash button still require a consumer-initiated step (after buying the button along with an Amazon Prime membership), making it simply a continuation of this manual reordering process.
This is widely seen as the cutting edge in many sectors. Instead of manually reordering, you subscribe to receive a certain amount per a predetermined schedule. While this improves brand lock-in and has clearly been well-received by consumers, this model presents a major flaw in that it fails to provide sufficient flexibility and misses out on new personalization and automation opportunities.
For example, let’s say you decide to work from home for a week and don’t shave as regularly as when you’re the office: you still receive the same number of razor blades. Or you’re on vacation and not changing the baby at home: you still receive the same amount of diapers. How about if you have guests staying with you for a month who have hard-core caffeine habits: you still receive the same number of coffee pods. Having to manually increase or decrease a subscription, or continually find yourself in the anxious state of having either too many or not enough products, can be a real pain. Many consumers, fatigued and distracted by these fluctuations, will not be willing to repeatedly adjust their subscription and instead simply cancel altogether.
Furthermore, brands that adopt a subscription model through a third party e-commerce channel still do not have access to all of the replenishment or customer data, not only missing out on the benefits of broader data management and analytics, but risking competition from other products also promoted on the channel.
3. Just–in–Time Replenishment:
It’s a next-generation idea that’s available today. The EVRYTHNG IoT Smart Products Platform and EVRYTHNG partner ecosystem delivers a new combination of connected devices and connected products to enable a new and better product-as-a-service model: Just–in–Time Replenishment.
Imagine this: You own a single-serve coffee machine that knows what type of coffee pods you like, can monitor how many servings it brews, and automatically maintains a specified level of inventory. This is fairly straightforward: a consumer registers with a brand or retailer for Just–in–Time Replenishment, including specification of the desired consumable inventory. Each time the connected device is used, it registers this and notes the use of the consumable via either WiFi or a scanning capability.
When home inventory reaches the reorder point, the Just–in–Time Replenishment platform triggers a selection of actions depending on the consumer preference:
Ask the consumer if they want to order different consumables (i.e. flavors, seasonal promotions, improved models)
Ask the consumer for approval to reorder the very same consumables
Automatically reorder a defined number of consumables
Consumers can be given the options of staying with the same e-commerce provider and receiving new pricing options across e-commerce channels. Brands and/or retailers can also define their preferred fulfillment channels, including e-commerce partners or direct fulfillment.With Just–in–Time Replenishment, people get the exact amount of coffee, razor blades, diapers, or any kind of household consumable exactly as they need it, while brands can drive loyalty and consumer engagement and improve end-to-end data visibility. And for brands that have seen their sales volumes and margins squeezed by disruptors or disintermediaries, this is an opportunity to put them in a box or kick them to the curb, reclaiming their competitive advantage.
As leading brands bring Just–in–Time Replenishment to market, we expect to see similar dynamics as witnessed in previous cycles: consumers will start to expect this capability, and competitors will scramble to adapt. Don’t say we didn’t warn you.
Curt Schacker, Senior Vice President, Connected Products at EVRYTHNG, has spent over 25 years in the Silicon Valley high tech community, having held a number of senior positions in sales, marketing, and business development, including VP of Worldwide Marketing at Wind River (Intel), Executive VP of Field Operations at Real-Time Innovations, and VP of Sales at Arrayent. He is a strong advocate for advancement of Web- connected products. Curt began his career developing flight software for the NASA Hubble Space Telescope.
Ryan McManus, Senior Vice President, Partnerships & Corporate Development at EVRYTHNG, has over 20 years’ experience as a leader in both digital business start-ups and large corporate digital transformations. He previously founded Accenture’s Digital Business Strategy practice and served as the Accenture Strategy COO and a leader in the firm’s Corporate Strategy, M&A and International Expansion businesses.