Futureproofing digital business models in Retail - Jacob Dutton, 383 - Byte Breakfast February 2016

Good morning, and thank you for joining us for our first Retail Byte briefing of the year. For those of you that dont know who 383 are; were 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. Were 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, Im a Partner at 383 and employee number 2. Over the last 8 years Ive 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.

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Good morning, and thank you for joining us for our first Retail Byte briefing of the year. For those of you that dont know who 383 are; were 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. Were 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, Im a Partner at 383 and employee number 2. Over the last 8 years Ive 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.

First of all, lets 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, its crucial to develop new customer propositions, revenue streams and models. Let's look at a practical example of a retailer who didnt understand this.Source - Wikipedia



First of all, lets 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, its crucial to develop new customer propositions, revenue streams and models. Let's look at a practical example of a retailer who didnt understand this.

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 stores 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



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 stores 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.

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 didnt foresee the looming decline in CD sales and didnt 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



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 didnt foresee the looming decline in CD sales and didnt 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.

In much the same way as Borders didnt understand that its purpose was to enable people to read (rather than sell books), Blockbuster didnt understand that they werent renting DVDs, they were enabling people to watch movies.



In much the same way as Borders didnt understand that its purpose was to enable people to read (rather than sell books), Blockbuster didnt understand that they werent renting DVDs, they were enabling people to watch movies.

Netflix did. In fact, when they tried to sell to Blockbuster in the early 00s 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 doesnt sound severe but thats in the region of nearly $70 billion in salesthat have moved to smaller more nimble, savvy players.



Netflix did. In fact, when they tried to sell to Blockbuster in the early 00s 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 doesnt sound severe but thats in the region of nearly $70 billion in salesthat have moved to smaller more nimble, savvy players.

These newer retailers are competing in such ways that we may not immediately even categorise them as retailers. Theyre slowly nibbling away at market share and value chain.

And whilst were all comfortable with the work weve done on

So - Id imagine that most retailers in this room are able to sell online, and have a solid e-commerce offer?



So - Id imagine that most retailers in this room are able to sell online, and have a solid e-commerce offer?

Id also imagine that you all have some sort of mobile offer, even if thats just that theres an app where people can browse for and buy products?



Id also imagine that you all have some sort of mobile offer, even if thats just that theres an app where people can browse for and buy products?

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, theyre not new models.



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, theyre not new models.

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. Thats not to say were advocating you go away and overhaul your business tomorrow but we certainly think that its time traditional retailers started exploring how to take advantage of some of these.



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 way to sell the same things to customers. Thats not to say were advocating you go away and overhaul your business tomorrow but we certainly think that its time traditional retailers started exploring how to take advantage of some of these.

Subscription models are interesting. Theyve been employed by the likes of Netflix, Graze and Cornerstone (who youll hear from shortly). And theyre attractive because the constant revenue stream from a subscribing customer reduces uncertainty in income. Theyre 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. Theyre effectively (but ethically Im 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.



Subscription models are interesting. Theyve been employed by the likes of Netflix, Graze and Cornerstone (who youll hear from shortly). And theyre attractive because the constant revenue stream from a subscribing customer reduces uncertainty in income. Theyre 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. Theyre effectively (but ethically Im 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.

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 dont 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 its 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.



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 dont 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 its morphed in that time. 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.

Marketplaces are another clear disruptor because they dont actually own the products theyre selling to customers. Theyre only facilitating the purchase between users and taking a percentage. Weve 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. Were just designing the service at the moment and doing some tech exploration on how we might engineer this.



Marketplaces are another clear disruptor because they dont actually own the products theyre selling to customers. Its only facilitating the purchase between users and taking a percentage. Weve 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. Were just designing the service at the moment and doing some tech exploration on how we might engineer this.

If you look at ASOS, theyre 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 arent companies like HMV doing this? Why cant I buy from other gamers with an approval from HMV?



If you look at ASOS, theyre kind of 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 arent companies like HMV doing this? Why cant I buy from other gamers with an approval from HMV?

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. Its part of the sharing economy and its likely one of the most disruptive forces around. What if people dont need to buy whats in your store or on your site, but they just need access to it? Were 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?



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. Its part of the sharing economy and its likely one of the most disruptive forces around. What if people dont need to buy whats in your store or on your site, but they just need access to it? Were 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?

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



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

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



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

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.



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.

Specifically, get out to stores and talk to customers who are and arent 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 theyre using and where youre losing share of wallet.

One of the things we like to do, and again its simple, is to take clients out on safari to look at retailers who are doing things in new and innovative ways. Its no more complex than taking people into stores and meeting new and interesting startups who are disrupting your model. And theyll want to meet, youre 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 theyre hiring us to do? How can we make that easier for them?



Specifically, get out to stores and talk to customers who are and arent 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 theyre using and where youre losing share of wallet.

One of the things we like to do, and again its simple, is to take clients out on safari to look at retailers who are doing things in new and innovative ways. Its no more complex than taking people into stores and meeting new and interesting startups who are disrupting your model. And theyll want to meet, youre 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 theyre hiring us to do? How can we make that easier for them?

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.



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.

You don't even need engineering knowledge to do this - the first place we start at is paper prototypes. Thats 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 isnt the patience or time to sit in on these sessions so were big advocates of using video to tell the story of a product or service and to demonstrate the use case for it. Weve done that with Hilton recently and its unlocked major investment for how we reimagine the future of their guest experience.

If you need something higher fidelity, again, please dont think you need a team of developers to do this - just throw some JPGs onto a mobile or desktop to communicate the proposition to users and get their feedback.



You don't even need engineering knowledge to do this - the first place we start at is paper prototypes. Thats 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 isnt the patience or time to sit in on these sessions so were big advocates of using video to tell the story of a product or service and to demonstrate the use case for it. Weve done that with Hilton recently and its unlocked major investment for how we reimagine the future of their guest experience.

If you need something higher fidelity, again, please dont think you need a team of developers to do this - just throw some JPGs onto a mobile or desktop to communicate the proposition to users and get their feedback.

Finally, build a business case for the model you want to test inside your business. Were 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 theyll want to see numbers.

Again, please dont spend 12 months with a consulting firm putting this together, you dont have 12 months and you really dont need it.



Finally, build a business case for the model you want to test inside your business. Were 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 theyll want to see numbers.

Again, please dont spend 12 months with a consulting firm putting this together, you dont have 12 months and you really dont need it.

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?

Dont write a business plan, just throw some early assumptions into Business Model Canvas. If youve never seen BMC, its 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. Ill 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 shouldnt take longer than 6 weeks to do this and its a habit we help all of our clients to get into. Once its done put the videos, data, prototypes, proposition and business model into a deck and share it internally.



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?

Dont write a business plan, just throw some early assumptions into Business Model Canvas. If youve never seen BMC, its 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. Ill 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 shouldnt take longer than 6 weeks to do this and its a habit we help all of our clients to get into. Once its done put the videos, data, prototypes, proposition and business model into a deck and share it internally.

Heres 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 - whats our route into them through this medium? What new model exists here?



Heres 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 - whats our route into them through this medium? What new model exists here?

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.



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 (see the next slides notes).

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



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

The key takeouts here are that we can optimise the experience of our existing model to a certain extent, but that these arent the fundamental shifts required to guarantee a future for our businesses.



The key takeouts here are that we can optimise the experience of our existing model to a certain extent, but that these arent the fundamental shifts required to guarantee a future for our businesses.

Get out and talk to customers; youd be amazed at the insight and opportunity this throws up. I cant believe that in most companies that this still isnt someones full time job. Ive been working at a bank recently where the guy in charge of managing and developing new products hadnt spoken to a customer for 6 years.



Get out and talk to customers; youd be amazed at the insight and opportunity this throws up. I cant believe that in most companies still that this isnt someones full time job. Ive been working at a bank recently where the guy in charge of managing and developing new products hadnt spoken to a customer for 6 years.

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.



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.

So, in 20 minutes, Ive 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



So, in 20 minutes, Ive 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..(see next slide).

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?



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?

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.



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. .

Id be really happy to have a coffee with anyone whos 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 [email protected].

Were always keen to make sure Byte is about you learning, and not us pitching, but suffice to say we practice everything Ive shown you here today in our work at 383.

So, go and get started.



Id be really happy to have a coffee with anyone whos interested - 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 [email protected]

Were always keen to make sure Byte is about you learning, and not us pitching, but suffice to say we practice everything Ive shown you here today in our work at 383.

So, go and get started.

