Is AI needed to cure this existential business crisis?
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In Apex internet predators will devour you I explored Amazonization — being taken out by Amazon’s mojo — and its predecessor, Walmartization. Many senior business executives secretly shake with fear and anger over what Amazon and Walmart could separately do to their businesses. Consider the stresses on Consumer Packaged Goods (CPG) companies.
Private-label brands and other brand exclusives are growing
Amazon currently has 135 private-label brands, and it has deals to sell another 332 brands exclusively around the world. Walmart has 56 private label brands and hundreds of exclusive products.
They account for a substantial amount of business volume.
All of which can undercut most CPG firms market position.
Voice-based ordering bots are here
The emerging voice-based ordering battle between Amazon+Whole Foods vs. Walmart+Google is a fear force multiplier that threatens to neuter brand marketing by most consumer packaged goods (CPG) manufacturers.
Walmart has wed the Google Assistant
In August 2017, Walmart announced that it and Google were partnering to make shopping even easier. Now we know what that means: with Walmart Voice Ordering people with smart speakers – Google Assistants – can say “Hey Google, talk to Walmart.” Then, according to Walmart
The Google Assistant will add items directly to their Walmart Grocery cart. Best of all, customers can be extra confident that we can quickly and accurately identify the items they are asking for with the help of information from their prior purchases with us. The more you use it, the better we’ll get. For example, if a customer says “add milk to my cart,” we’ll make sure to add the specific milk the customer buys regularly. Instead of saying “1 gallon of 1% Great Value organic milk,” they’ll simply say one word: “milk.”
Alexa is Amazon’s voice-based ordering and selling bot
With its Echo device, Amazon will be able to do the same as the Walmart-skilled Google Assistant but right now, it has a larger installed base of smart speakers than Google.
My Speculative Scenario
Alexa will also keep track of what milk you ordinarily order and then, from time to time, when you order milk, it might offer an alternative brand just from Amazon. And, by the way, Alexa will manage to send it to you at no charge, just to try it out. Completely free.
Pretty soon, the brand you recall (and the one Alexa or Google Assistant relies on to fill your orders) could be:
- Whole Foods 365
- Walmart Great Value
Or any one of hundreds of other brands captive to either Amazon or Walmart.
Dominance is not guaranteed
Customers ordering any goods via either Alexa or Google Assistant today are a brave, adventuresome rare breed. But we’re still in early days here.
Plusses for Amazon and Walmart of selling via well behaved voice-bots
With a smart speaker servicing the buyer, buyers won’t get anywhere near as distracted by a broad range of alternatives as happens on a visual display. That gives the seller (Walmart or Amazon) more control over the customer experience and it robs the CPG manufacturer of brand exposure (impressions) on the consumer.
Consumers are more likely to buy private-label goods when there’s an array of private label alternatives. Both Walmart and Amazon have to be careful not to disrupt the smooth service process they envision with too many consumer service interruptions pushing private label goods.
Great customer experiences are critical. If sellers can nudge consumers towards positive experiences while pitching new private-label alternatives, then this approach could blossom. (Remember how most of the tech industry pooh-poohed iPhones for only having a glass keyboard?)
If this approach blossoms, CPG marketers will be severely challenged by this new way of buying and selling via smart speakers.
The big challenge
So what can CPG firms do about this? How do they fight off both Apex predators here? How do they maximize their ability to differentiate their brands? How do they undercut the ability of Walmart and Amazon to dramatically reshape consumer product marketing?
Is AI or an AI strategy or Digitalization the answer?
There’s an underlying major lesson here.
Amazon and Google have spent a lot of time and money building AI technologies to improve their product and services offerings.
CEOs (and their direct reports) remain under heavy bombardment from consulting and analyst firms, vendors, service providers and many members of the technology press. They are being urged to invest now in AI or run the risk of being left behind.
The high-pressure sell
One would think the solution for CPG firms would be to create their own AI engineering groups and staff them with the best AI scientists to build a solution that will crush this threat.
That could be foolish.
Six alternative strategic approaches
Define a business strategy first!
From a business perspective, what might you be trying to accomplish?
Here are six alternative business strategies to consider. They’re meant to be illustrative. It’s not clear if any or all will save most CPG firms businesses. Much more detail is needed at a business strategy level (and, where appropriate, a technical plan as well.)
Here are 3 non-technical strategies and 3 technology-heavy strategies. How would these work for you?
- Government Intervention: Encourage apex predator regulation for anti-trust, privacy and other reasons. Push for legislation to block platforms from offering their own products or “putting their own thumb on the scale to benefit their own offerings.” There’s already a lot of activity of this type in Europe and its ramping up in the US.
- Buyer opposition: Inflame the passions of people everywhere who should be concerned about their personal privacy. Again, there’s a lot of this activity. Your business strategy might be to augment opposition with advertising, social media and indirect pressure on various governments, perhaps in unison with others in your industry.
- Brand protection: Block sales of your premium brands via the apex predators (by itself, this could be suicidal; this strategy requires additional strategies like 6, Alliances.)
- Channel refinement: Attract customers to other less threatening channels, including your own. This requires technology investment, either solo or in a consortium (see alliances.)
- Customer experience: Improve customer experience dealing with your firm. This honestly cuts across all business strategy alternatives, and like number 4 above, requires technology investment.
- Alliances: Create larger collections of firms to better counter-balance the apex internet predators strengths. Consider:
- All firms in a category (the equivalent of a “Diamond Market”)
- Other affinity groups (geography, politics, social groups as in “Veterans Markets”)
- Consider the two main unattached technology wild cards, Apple (with Siri) and Microsoft (with Cortana) as potential partners. Smaller firms might also fit well here.
Perhaps a seventh alternative is best
- The value of detailed strategic thinking
BestBuy’s approach is a good example. In Amazon Almost Killed Best Buy. Then, Best Buy Did Something Completely Brilliant the author tackles the question
How did BestBuy survive?
With all the talk about digital transformation and the uses of AI and other new technologies to stave off Amazon or other Apex Internet Predators, you’d think a tribute to Best Buy’s surviving and thriving had to do with technology.
If you did, you’d be wrong.
According to the Inc. article, CEO Hubert Joly took three major steps to remake the company:
- Focus on people
- Turn weakness into strength (How to make money on “show rooming”)
- Don’t sell. Build relationships. (Exploit Geek Squad and change metrics.)
The New York Times tackled the same question — How did Best Buy survive? — and reported that CEO Joly’s success was due to:
- Price, price, price: Match Amazon (or anyone else’s) pricing.
- Focus on humans
- Turn brick-and-mortar into showcase-and-ship
- Cut costs quietly
- Get lucky, stay humble and don’t tempt fate
- Sometimes, the best strategy consists of effective tactics, properly executed over and over again, with heightened awareness of the need to continually adapt and change.
- We don’t know who will succeed or fail in the long term.
- Sears, Roebuck was the Amazon of its day.
- The starting point should not be technology.
Technology can be the means for implementing a strategy that could be the strategic solution. Sometimes major technology investments aren’t even needed. And none of this means, of course, that Best Buy can now rest assured that it will not get crushed by Amazon or Alibaba or another apex predator in the next few years.
This analysis applies to more than “AI” strategy. Focus on business strategy first, and a careful assessment of current strengths and weaknesses and the new state you want to move your business strategy to. Avoid overspending and taking on too much risk with new technology (AI, Big Data, Analytics.)
But also look at where it could really make a difference.
Tell us where you’re applying this content and what else you’d like to see us cover in this area.
Disclaimer: This post reflects my own opinion. I wrote it myself. No one paid for it.