Jacob Dutton, Partner & Commercial Director at digital experience studio 383, talks about the ways that traditional retail models are being disrupted. He also explore some practical ways that today's retailers can help to future proof their revenue streams for tomorrow Jacob spoke at 383's monthly Byte Breakfast event. Each event features a guest speaker from inside one of the world’s most interesting companies and a related talk on product development and customer experience from a team lead at 383.

1. Good morning, and thank you for joining us for our first Retail Byte briefing
of the year. For those of you that don’t know who 383 are; we’re a digital
experience studio. That essentially means that we help big companies to
act more like the startups that are disrupting them. Helping them to deliver
transformational new digital products and services in a leaner, more agile
way. We’re kind of the antithesis of a Deloitte or an Accenture. The anti-
consultancy, in that we actually design and make stuff too.
As for me, I’m a Partner at 383 and employee number 2. Over the last 8
years I’ve worked with a mixture of our traditional and start up retail clients
to help them imagine, validate, design and launch new ways of doing
business that improve customer experience and unlock new income.
What I want to do this morning is look at a few ways that traditional retail
models are being disrupted and also to explore some practical ways that
today's retailers can help to future proof their revenue streams for tomorrow.

2. First of all, let’s look at how many traditional retailers are operating
today. At its most basic level, they are set up to source goods from
suppliers using a buying department, this buying department fills a
store with sought-after goods and then the retailer markets these
goods to consumers and sells them at a profit. But we know that
aside from the foundations of a successful retail business, it’s
crucial to develop new customer propositions, revenue streams and
models. Let's look at a practical example of a retailer who didn’t
understand this.
Source - Wikipedia

3. This is the original Borders store in Ann Arbor, Michigan. It opened in
1971 and was founded by Tom and Louis Border, both smart guys and
University of Michigan graduates. They developed an inventory system
that tailored each store’s products to its local community. They even
had the foresight to spin this inventory system off into its own business
that supplied other local independent book stores. And whilst at its
height it operated over 1,200 stores in the US and rest of the world, this
is where the innovation ended.
Source: Wikipedia

4. 2006 would be the last time it would turn a profit and over the
next 4 years its income dropped by $1bn. Why? Aside from
spiralling debt, operating too many stores and generally poor
management, they were too late in understanding the impact of
the web on their core business; from 2001-2008 they outsourced
their online sales to Amazon (worryingly something that M&S had
been doing too until very recently). They didn’t foresee the
looming decline in CD sales and didn’t understand the changes in
how customers wanted to consume books. They were focused on
selling books, not helping people to read books. No e-reader was
ever developed; Amazon did this, so did Barnes & Noble, even
WHSmith.
Source: Wikipedia

5. In much the same way as Borders didn’t understand that
its purpose was to enable people to read (rather than sell
books), Blockbuster didn’t understand that they weren’t
renting DVDs, they were enabling people to watch
movies.

6. Netflix did. In fact, when they tried to sell to Blockbuster in
the early 00’s for $50m, they were laughed out of the
boardroom. They now have a market cap of $38bn.
The very nature of retail competition is changing again as
technology becomes more accessible. Since 2009, the top
25 retailers in the U.S. have lost 2 percent of market share,
this doesn’t sound severe but that’s in the region of nearly
$70 billion in sales that have moved to smaller more nimble,
savvy players.

7. So - I’d imagine that most retailers in this room are able to sell online, and have a solid
e-commerce offer?

8. I’d also imagine that you all have some sort of mobile offer, even if that’s just that there’s an app where people
can browse for and buy products?

9. And many of you may offer a kind of click and collect experience. But
great as all these things are, they are just experiences on top of the
same model, they’re not new models.

10. So, how do we avoid becoming another Borders, a Blockbuster or
Woolworths? Well, we believe there are 3 key models that will disrupt the
traditional retailer over the next 5 years and this means finding new ways of
doing business, not finding new ways to sell the same things to customers.
That’s not to say we’re advocating you go away and overhaul your business
tomorrow but we certainly think that it’s time traditional retailers started
exploring how to take advantage of some of these.

11. Subscription models are interesting. They’ve been employed by the likes of Netflix,
Graze and Cornerstone (who you’ll hear from shortly). And they’re attractive
because the constant revenue stream from a subscribing customer reduces
uncertainty in income. They’re often paid ahead of shipping the product, which from
a cash flow perspective is much healthier and the revenue overall is often greater
than that derived from one time purchases. They’re effectively (but ethically I’m sure)
locking consumers in. We worked with Ollie at Cornerstone to build out their model,
test the proposition and launch the platform. One of the super interesting things we
found when talking to customers was that people were subscribing not to the razors,
but the convenience of not having to go to a store to buy them anymore and I think
you can apply that convenience lens to other operators such as our friends from
Graze and Netflix.

12. In the fashion world, you only need to look at services like Thread to understand how this model taps into
a very real customer behaviour (for men at least), which is that they want to look good but they don’t
necessarily want to spend the time in stores or even shopping online. Thread has a personal stylist
curate a monthly box of clothes that he or she thinks may suit you and that you may like and ships them
to you on a subscription basis. Interestingly, in the early days this was just another way to buy ASOS
clothes but it’s morphed since then. You can look at other players in this space such as Birchbox, who
spoke at our Canvas Conference last year, or Bloom, the flowers on subscription service. You may also
have noticed that Amazon will actually allow you to subscribe to pretty much any of their products on the
right-hand side of a product page when you add to basket.

13. Marketplaces are another clear disruptor because they don’t actually
own the products they’re selling to customers. They’re only facilitating
the purchase between users and taking a percentage. We’ve been
advising a major camera manufacturer lately on building out a model
whereby users of their cameras can opt-in to upload certain shots to
a stock photography marketplace and share in a return of those
revenues. We’re just designing the service at the moment and doing
some tech exploration on how we might engineer this.

14. If you look at ASOS, they’re taking this into their offer at
the moment with ASOS Marketplace, where you can buy
from independent boutiques and there are a stack of other
successful examples from the likes of Not On The High
Street and Etsy. Why aren’t companies like HMV doing
this? Why can’t I buy from other gamers with an approval
from HMV?

15. Finally, access over ownership of a product or service
has been pioneered by the likes of AirBNB, but it has
some serious implications on the retail world as well
as hospitality. It’s part of the sharing economy and it’s
likely one of the most disruptive forces around. What if
people don’t need to buy what’s in your store or on
your site, but they just need access to it? We’re
working with a car manufacturer now to engineer a
new service where people can have access to a range
of their vehicles dependent on need, such as a sports
car at the weekends and a SUV for Monday to Friday.
Think of it as AirBNB for cars, and there are other
opportunities too. What if I just need access to a
laptop for the school term from PC World (or similar),
rather than permanent ownership?

16. Another example is from Audi in Germany, where they’re letting
groups of users share the same car and schedule when they need
it through an application.

17. I wanted to give you some practical things you can do tomorrow
to start exploring alternative models within your own business.
It’s not hard to develop propositions that tap into new customer
behaviour and for us to start doing business in different ways. In
fact, it’s super simple and a lot of the time this is where we’re
called in.

18. Recommendation One is to talk to customers. Sounds straight forward, but done in the right way it can help to
unearth surprising insight. We undertook some work recently with a major travel business to help them better
understand their users and their behaviours and as a result we've now got around 5 actionable pieces of
insight for where we take the business next and what new digital models we spin out.

19. Specifically, get out to stores and talk to customers who are and aren’t buying from you; how could you make the purchase but
more crucially the consumption of the products that you sell easier and more convenient for them? Film the responses, build a
picture of what other services they’re using and where you’re losing share of wallet.
One of the things we like to do, and again it’s simple, is to take clients out on ‘safari’ to look at retailers who are doing things in
new and innovative ways. It’s no more complex than taking people into stores and meeting new and interesting startups who are
disrupting your model. And they’ll want to meet, you’re a potential strategic investor.
Also just survey people - we all have a CRM, take some data from there and ask customers what it is they need from their
experience with us. What is it that they’re hiring us to do? How can we make that easier for them?

20. There is absolutely no need to commission an Accenture or Deloitte or McKinsey to go away for 12 months and
research appetite. Develop a prototype that you test with the customers you spoke to, see if it solves their
problems and understand the nuances. We do this all the time, for every new product or service we design and
engineer there are more than likely about 9 prototypes we threw away or iterated on before we got to something
that solved a problem.

21. You don't even need engineering knowledge to do this - the first place we start at is paper
prototypes. That’s literally just sketching a product or service interface onto bits of paper and
walking customers through what the proposition might be or how it might work.
At boardroom level, sometimes there isn’t the patience or time to sit in on these sessions so
we’re big advocates of using video to tell the story of a product or service and to demonstrate
the use case for it. We’ve done that with Hilton recently and it’s unlocked major investment for
how we reimagine the future of their guest experience.
If you need something higher fidelity, again, please don’t think you need a team of developers
to do this - just throw some JPG’s onto a mobile or desktop to communicate the proposition to
users and get their feedback.

22. Finally, build a business case for the model you want to test inside your business. We’re a cool studio, yes,
but even we understand that we have to have our initiatives sponsored by senior executives and that
inevitably at some point they’ll want to see numbers.
Again, please don’t spend 12 months with a consulting firm putting this together, you don’t have 12 months
and you really don’t need it.

23. Businesses can develop a compelling proposition for the model, product or service
by boiling down the essence of their offer into a sentence. What is the customer
problem, how can we solve it and what is the value that is generated for our
customers?
Don’t write a business plan, just throw some early assumptions into Business
Model Canvas. If you’ve never seen BMC, it’s a single A1 piece of paper where we
can show a visual representation of how our idea will make money and what
resources we need in order to do that. I’ll share with you where you can learn more
about BMC shortly.
We should be going through this loop constantly- customer insight, prototype
feedback, business case development. It shouldn’t take longer than 6 weeks to do
this and it’s a habit we help all of our clients to get into. Once it’s done put the
videos, data, prototypes, proposition and business model into a deck and share it
internally.

24. Here’s an example from our client Homeserve, who are not a retailer in the
traditional sense but they sell stuff and the people they sell stuff to are changing.
Their customers are installing smart thermostats in their homes - what’s our route
into them through this medium? What new model exists here?

25. We went to customers’ homes who had installed smart technology and wanted to
understand how they were using it and at what point it was appropriate for Homeserve to
offer services. We paper prototyped a tonne of examples and eventually built out an
subscription and one-time engineer booking API that can be consumed into any third party
smart home application like Tado, Hive or Nest. And yes, we made a video of what that
might look like.

26. The Tado video demonstrator can be viewed here:
https://vimeo.com/111514284

27. The key takeouts here are that we can optimise the
experience of our existing model to a certain extent, but
that these aren’t the fundamental shifts required to
guarantee a future for our businesses.

28. Get out and talk to customers; you’d be amazed at the
insight and opportunity this throws up. I can’t believe that in
most companies that this still isn’t someone’s full time job.
I’ve been working at a bank recently where the guy in
charge of managing and developing new products hadn’t
spoken to a customer for 6 years.

29. Finally, learn from the people who are coming for
your lunch and do it in a way that is relatively
quick and inexpensive. John Lewis launched JLab
a couple of years ago to incubate disruptive start
ups and give them a route to market - this is a
great way to get closer to new models.

30. So, in 20 minutes, I’ve demonstrated
why retailers still need to find new
models, who is doing it well and how
you can go about creating your own.
The questions I think to ask yourself
are…

31. How can we better solve problems for customers?
How will customers want to access our products in the future?
How can we test this quickly and inexpensively?

32. Here are two great places to start if you are interested.
Digital Transformation by Jo Caudron & Dado Van Petegham -
a book that will help you to understand the underlying models
that power the world's most disruptive businesses.
Strategyzer.com is a great site to understand how to quickly
build out models to share internally.

33. I’d be really happy to have a coffee with anyone who’s interested in all of this
- helping traditional companies to act more like disruptors is what I'm
passionate about and I usually get 3 or 4 requests for a chat after Byte and
I'm more than happy to do that. You can get in touch at
jacob@383project.com.
We’re always keen to make sure Byte is about you learning, and not us
pitching, but suffice to say we practice everything I’ve shown you here today
in our work at 383.
So, go and get started.