Demand Chains: Technology Building Blocks

May 11th, 2015   •   Uncategorized   •   no comments   

For centuries, the prevailing rule that dominated commerce has been Caveat Emptor – let the buyer beware.  Implicit in this rule is that it is up to the purchasers of a good, be it retail or wholesale, to understand the quality and price of what they are buying and act accordingly.  The advantage is almost entirely to the seller, given a detailed knowledge of the item, its provenance, strengths and weaknesses, price (particularly in the local market) and the efficacy of important terms and conditions, such as warranties.

This edge is sometimes described as information asymmetry in which the knowledge necessary to make a satisfactory purchase is a lot more difficult to assemble for the buyer.  In recent years however the emergence of consumerized internet and the powerful information exchanges enabled by the internet have subverted this balance.  Buyers are now equipped with the broadest possible reach into global markets and have near if not complete function, performance and price transparency.  Buyers can use social media to tap into the experience of previous purchasers who seem only too happy to share the good and, more frequently, the bad news about a product.  Buyers can go out to YouTube and see the product demonstrated and receive a tutorial by a previous purchaser about how exactly easy it is to install.

Now, to be successful, the commercial transaction must meet the Starbucks Challenge.  Can the desired good be successfully purchased while waiting/killing the time it takes to order and pick up your latte? The item in question can be an airplane ticket, a commercial grade HVAC unit, an equity option or a pair of stiletto heels.

This weighting toward the buyer’s information asymmetry requires goods providers to proactively reach forward into their potential marketplaces to best understand, engage with, influence and learn from potential buyers and stakeholders to buying decisions. Public and private enterprises are learning to approach these front-end Demand Chain aspects of their businesses in as disciplined a fashion as they have done with their Supply Chains.

The following is a table that summarizes some of the primary technology building blocks that underpin robust demand chains in Digitally Enhanced Businesses (DEBs):

 

Technology Function Comments Advantage to:
Internet Provide instant access to 3 billion customers, retail and wholesale, globally A great leveler that permits raw start-ups to appear as established players, and established players to appear as innovators All Categories
Big Data Capture, retain and analyze relevant bits of information about customers, products markets and competitors Both Structured and Unstructured Data mined to develop inferences, effects about customer needs as well as competitive positioning All, but Expansionists, Fulfillers and Platform Impresarios are best advantaged by large, existing data
Mobile Technologies, Tools & Apps Put Product Pricing, Selection, Service and Support tools in the hands of consumers at throughout THEIR experience cycle Customers frequently have more information at their fingertips than sales or customer service reps they are negotiating with. At the very least, you must level your playing field. Neutral – useful to all categories
Cloud Third Party services rapidly, relatively inexpensively and broadly available on demand Provides technology operations, information availability and networking infrastructure Alchemists Flattens start up costs Permits rapid scaling
Social Networking Internet Based Communities of Interest, Purpose or Support Facilitates viral marketing, support, consumer feedback and competitive information, Can also be the basis for collaborative enhancement of the provider. Alchemists who reduce advertising, promotional costs Expansionists who create new brands away from existing demographics
Analytics Provide actionable insights that can make a material impact on the providers success or the buyers satisfaction Many markets are too broad, highly fragmented and rapidly changing for gut feels or relatively simple & infrequent sampling to keep up All Categories

The Platform Impresarios – Create demand for an industry ecosystem or platform:

May 11th, 2015   •   Uncategorized   •   no comments   

A demand chain can be created around or for an entire industry under the auspices of a customer-centric leader, typically self-appointed. Originating a mortgage loan involves over 1200 steps and up to fifteen intermediaries. On-line exchanges such as Lending Tree permit borrowers to attract and closely compare multiple lenders with a high degree of transparency. Such exchanges can also orchestrate or at least track the various players such as title insurers and home appraisers necessary to close. Such an approach is considered in detail in The Elastic Enterprise by Haydn Shaughnessy and Nicholas Vitalari.

The Fulfillers – Use Demand driven supply chains:

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The front-end customer experience is provided in a way that it is directly linked to a supply chain that has been designed and operated to be directly driven by customer demand. This often requires a massive investment to build a superior, agile supply chain. It also requires a superior customer experience. While this appears to be an obvious thought, the reality is much harder to obtain. An early leader in this was Dell Computer, who thrived in the Personal Computer era by dealing directly with consumers through multiple remote channels and thereby avoided expensive retail partners.

The Entertainers – Engage buying stakeholders or provide dramatic customer experience:

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The legacy entity already has assets such as a customer base, systems, skills and a relatively massive investment in supply chain. The objective is to understand who the stakeholders are involved in the buying decision and to provide capabilities to those stakeholders that increases their preference for the host entities’ products or to identify new product or service offerings.

The Alchemists – Disruptive new entrants who create demand where there has been neither demand or supply:

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New entrants who launch demand chains that target inefficient, slower moving sectors of the economy, seeking to upset the established order. The “Tech Bubble” of the late 90’s was fueled by the belief that web start-ups were about to dis-intermediate the Fortune 500. A current example is Airbnb, which substitutes unused space in urban neighborhood residences for expensive hotel rooms, providing savings of up to 80%. They create demand where none existed before.

The Expansionists – Legacy Extension or Refresh:

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Created by successful companies to protect and extend their share, legacy growth demand chains are new ways to reach customers. They may seek adjacent markets by leveraging their brand, buying power or distribution capabilities. They may also seek to refresh an image in the marketplace by repositioning strong but stale capabilities. As an example, Nordstrom’s has recently acquired HauteLook which is an on-line clothing retailer that operates at a much more competitive price point than its brick and mortar stores. It also appeals to a younger audience who would be more comfortable shopping on-line than its typical suburban mall customer.

Create demand for an industry ecosystem or platform

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The legacy entity already has assets such as a customer base, systems, skills and a relatively massive investment in supply chain. The objective is to understand who the stakeholders are involved in the buying decision and to provide capabilities to those stakeholders that increases their preference for the host entities’ products or to identify new product or service offerings.

Disruptive new entrant creates demand where there has been neither demand or supply

May 9th, 2015   •   Uncategorized   •   no comments   

New entrants who launch demand chains that target inefficient, slower moving sectors of the economy, seeking to upset the established order. The “Tech Bubble” of the late 90’s was fueled by the belief that web start-ups were about to dis-intermediate the Fortune 500. A current example is Airbnb, which substitutes unused space in urban neighborhood residences for expensive hotel rooms, providing savings of up to 80%. They create demand where none existed before.

Engage buying stakeholders or provide dramatic customer experience

May 9th, 2015   •   Uncategorized   •   no comments   

The legacy entity already has assets such as a customer base, systems, skills and a relatively massive investment in supply chain. The objective is to understand who the stakeholders are involved in the buying decision and to provide capabilities to those stakeholders that increases their preference for the host entities’ products or to identify new product or service offerings.

Legacy Extension or Refresh

May 9th, 2015   •   Uncategorized   •   no comments   

Created by successful companies to protect and extend their share, legacy growth demand chains are new ways to reach customers. They may seek adjacent markets by leveraging their brand, buying power or distribution capabilities. They may also seek to refresh an image in the marketplace by repositioning strong but stale capabilities. As an example, Nordstrom’s has recently acquired HauteLook which is an on-line clothing retailer that operates at a much more competitive price point than its brick and mortar stores. It also appeals to a younger audience who would be more comfortable shopping on-line than its typical suburban mall customer.