Thursday, 19 December 2013

Is it possible to be virtual and local at the same time? Part 2: New is still old.

The way we buy stuff hasn’t changed. The tools with which we do so have changed. Everyone needs to learn to use them.

There are four phases to any shopping transaction: researching what you want, making the purchase transaction, fulfilling the purchase, and getting the next transaction. It is the retailer’s job to make each of these phases as compelling as possible to each of its customers. The retailer advertises and encourages reviews to improve research; it makes purchasing frictionless by using methods that make sense to the customer like swallowing shipping fees; it delivers the goods in a way that is convenient and adds value to the transaction like bringing the groceries right into the kitchen; and it engages with the customer to ensure every interaction point adds value like creating an online community around its products.

There are new tools in this third industrial age for each of these phases, and the old tools have lost their usefulness. For example, in place of yellow pages, we google for the location of the nearest pet shop to replace next door’s hamster which our devil cat ate. And because Google adds value to every step of this transaction, as we search we can find: pictures so we can see which hamster looks like the headless corpse on the carpet; how much it costs from each of pet stores nearby; customer reviews of how helpful the pet store was in proposing the right doppelgänger; a payment system to allow the reservation of the life model decoy; and plot a route to the nearest car park to the pet store, to get there before closing time. And that’s just for the research phase.

The challenge for local retailers is to master these new tools in order to continue to be relevant. They have a slim advantage over online retailers in that you can actually interact with both the stuff that you’re buying, and the people that are selling it to you. It requires creativity to turn this advantage from being slim to being market-leading, but it is possible. Witness the leader in this, Apple, whose stores despite being seemingly devoid of produce, currently hold the US record for highest revenue per customer.

The good news is that the tools to master each phase of the shopping transaction are now no longer the sole possession of the big players. The barrier to entry has dropped dramatically so that anyone can have world class web retails sites, payment mechanisms, next-day logistics, and insightful customer analytics. Making the tools cheaper means that the tools themselves are no longer a telling advantage, it’s the customer proposition that is king once more.

The challenge for the provider of services to local retailers is to compete against the leading purveyors of these new tools. Consider hibu (current branding of the good old Yellow Pages), which for many decades provided indecent earnings for shareholders on the back of selling advertising space within inch-thick yellow directories to local businesses. Hibu now has to compete with Google, eBay and Craigslist as the preferred location for local businesses to list their goods and services. It is attempting to do so by creating a local online marketplace where goods and services are grouped by location, and deals promoted. It also sells an e-commerce toolset that addresses some of the challenges in the research, purchase and engage phases, for a monthly subscription.

It’s an interesting proposition, and has merit in my opinion. However, it has not progressed beyond trials in Oxford and Chicago in November 2012. I don’t have a clear view of why, but here are contributing factors:

·       hibu is late to market;
·       It doesn’t address all of the needs of its market, so can’t fulfil its proposition of being a subscribe-and-forget business model;
·       It doesn’t engage with customers the way they want to engage (where’s the app?);
·       There are better, cheaper options out there.

Hibu is feeling the pain of not only trying to fundamentally change its business model, but the fact that its customers are fundamentally changing their business models too, and therefore feeling their own pain. All pain, subsequently nobody gains.

In the next part, I'll write about where I think the local marketplace is heading.

For further reading, I encourage you to try out:

More in this series: part 1, part 3.

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