Marketing in the Future

There are two main types of consumables that a consumer buys: brand name and private label. There are stores that carry one or the other or a combination of the two. These stores are either brick and mortar, e-commerce and once again, a combination of the two. This setup, the increasing use of technology in household appliances and the increasing deculturation of society has the potential to clash and change how marketing will work in the future.

The Current Situation

Brand Name Products

Many brand name products are made by a few large multinational corporations. There is a famous infographic that makes it way around the internet that shows all the large companies and the products they sell.

[1]

Each one has their well defined product categories and they only bring out a new product if it doesn’t eat into the sales of another product. These companies have gotten big by 1) buying up the competition, 2) creating highly effective marketing campaigns, 3) buying up the best grocery store shelf space and 4) cornering the market on raw materials. The end result is to effectively block smaller competitors from gaining a toehold.

This is a process that has been in place for decades. Referencing the Kondratieff Wave (K Wave), it shows the US has been riding a long term, positive wave of prosperity since the 1950’s which has allowed these companies to get to the size that they are currently. Though they have gotten much bigger and more powerful there are signs of weakness in the strategy.

[2]

Private Label Products

Private labeled products have been around for a long time. Quelch and Harding in “Brands versus private labels: Fighting to win” [3] made the case back in 1996 that while brand name products shouldn’t be paranoid, they should be wary of private label products. There analysis continues to be relevant.

Grocery stores have been invested in private label products because of their marketing cost advantage. Quelch and Harding note that this strategy could be a risk for grocery stores. By going into so many product categories there is the potential to dilute their brand name.

Those stores that do go into the private label business have some favorable trends on their side: improved quality, creation of premium products, new selling channels (e.g. wholesale clubs) and new categories (e.g. beer and clothes)[3]. Since the ones that are doing the private labeling own the shelf space there is little reason to believe that this trend won’t continue to strengthen over time.

All this matters because of what those that are selling private label products have taught the consumer… that a label is just that, a label. It has little to do with the underlying product. In many cases, the underlying product came from the same factory line that the branded product came from. And since the products most likely to be bought under a private label are consumables (e.g. milk, cereal, razors, laundry detergent) the risk to the consumer of a poor purchase is minimal.

Brick and Mortar Stores

Brick and mortar stores are historically where people buy consumables from (private label and branded). Many of these items are bought during a weekly shopping trip where a list was created detailing everything a household had run out of. Since the weekly trip is normally made ONCE, it is inevitable that something will run out in a home between the shopping trips.

The grocery store, where much of this shopping happens, is designed, from the layout [4] to the shelving [5], to get a shopper to buy the most amount possible. This is the result of a business centric instead of a customer centric design. For those that don’t know the layout (e.g. the spouse that doesn’t normally do the shopping) this can lead to frustrating and anger.

e-Commerce Stores

Since the late nineties, there have been a couple standouts in the e-Commerce space. Companies like Amazon, e-Bay and Craigslist have transformed how people buy and sell their products online. With a simple click of a button any product from around the world could be yours.

Amazon specifically has pioneered many consumer centric features. With their one-click purchases and their Prime subscriptions they have made it their mission to make it easy for customers to buy products online. In 2015 they took it a step further with the Dash button. As soon as a consumer feels they are about to run out of a product they press the Dash button and a new bottle of XYZ consumable shows up at their doorstep.

[6]

Prediction of New Trend

Looking through the six supertrends in Futuring: The exploration of the future by Edward Cornish [7] two stand out as guides to where the future of marketing is headed: technological progress and increasing deculturation.

Technical progress is defined in the book as “all the improvements being made in computers, medicine, transportation, and other technologies, as well as all the other useful knowledge that enables humans to achieve their purposes more effectively.”

Cornish defines deculturation as “…when people lose their culture or cannot use it because of changed circumstances. Due to high mobility, rapid change, economic growth, and other factors…”

The predictions section is laid out in two parts. The first is the one to ten year predictions. The second is the 20+ year prediction. The one to ten year prediction is based on the research in “The Current Situation” above re: consumables. While what is happening in consumables has already started there is still a lot of advancement left. What the one to ten year prediction does is allow for extrapolating out a prediction for 20+ years. As individuals become more and more comfortable with the ideas laid out in the one to ten year predictions bigger ideas will become possible.

One to Ten Year Predictions

Machine to Machine, No Hassle Purchasing

The trend of computers getting smarter and smaller is a well worn path. With Moore’s Law [8] setting the stage it is conceivable that everyday household appliance will come with powerful computers and possibly even search engines built into them [9]. These computers will not be there so the appliance can do their current function better; they will be put there to extend the capabilities of that appliance.

The laundry machine is a perfect appliance example. Currently, its main job is to add water to dirty cloths, turn those clothes around a bunch of times to release the dirt, drain the water then spin to remove excess moisture. Notice no part of the process involves detergent. That is because this relatively dumb appliance has no concept of detergent. It didn’t add it in (the homeowner did) and the washing machine had no concept of whether the clothes got clean or not (it works off a timer).

What if the washing machine was aware of its surroundings? Add a much more sophisticated computer and add it to the homeowner’s wifi network (along with their smartphone, computer, refrigerator, car, etc.). This would allow the washing machine to know how much money the homeowner has in their bank account, what their yearly salary is and to learn what the homeowner searches for online so they can understand their stance on certain issues (e.g. the environment).

Let’s take all that information and now let the washing machine start making the purchases of laundry detergent. The washing machine could easily come with a well for dumping in the detergent. This way it can see the normal usage patterns and predict when it will run out. It can also look at cashflow projections and coordinate purchases with other appliances, like the refrigerator, so the homeowner doesn’t run out of money.

How will the washing machine know which product to pick? How would it know whether to buy Tide, All Free and Clear or 7th Generation? Since it knows that you are interested in the environment it discards Tide, yet it knows you don’t make a lot of money so it it discards 7th Generation leading to the purchase of All Free and Clear.

My washing machine has now removed the hassle of going to the grocery store to carry that heavy bottle of detergent and the inconvenience of running out halfway through the week. Add in the refrigerator making purchases and a run to the grocery store could become less and less frequent.

Prediction: Small, powerful computers will be embedded in household appliances allowing them to take over many of the mundane aspects of our life saving us money and time in our busy schedules.

Zero Brand Marketing

Does a washing machine that has been giving the authority by the homeowner to buy the laundry detergent need to be marketed to? This is an interesting concept that has huge implications to those that are on the brand infographic above. If the answer is “no,” then they are in serious trouble. Most of these companies rely on the strength of their name and the colors and graphics and spokespeople that represent that brand.

If my washing machine is the one doing the buying why shouldn’t the product show up in a simple white bottle with the words “Laundry Detergent” in bold black letters on it that the homeowner simply pours into the the machine well after it arrives and walks away?

Prediction: Machines will not care about a brand’s physical attractiveness and will be more interested in objective and verifiable facts.

Ultra Commodities & New Entrants

Machine to machine purchasing and zero brand marketing will result in a new class of consumables I call “ultra commodities.” A commodity is a product that is similar enough across all manufacturers that hypothetically an individual would get consistent product no matter who they bought it from. While this is hypothetically true, there is still room for purchasing bias since a human is still involved in the decision making process.

Machines or appliances have the potential to remove the brand bias or purchasing coercion. They can go by the numbers. What are the pro/cons, what are the ingredients, where did the ingredients come from, what are ALL the reviews saying? They can ask these questions all day long. They have nothing but time on their hand and a supercomputer inside them to run the calculations. This will lead to commodities that are free of all branding. Branding costs money and the machine, who has all the time in the world to price shop, will buy a different product if they find a comparable product for a penny cheaper.

The ultra commodity is just a further step in the increasing deculturation of our society. Whence we, as a society, used to buy regional products, we now buy from multinationals. The ultra commodity has the potential to take this trend one further where we actually have no idea where the products we buy come from. They could have come from a factory down the street or from a company across the globe.

On the positive side, since branding and the costs associated with it are removed, smaller local brands could see a resurgence. If a homeowner’s preference is to buy locally, and that preference is known by the household appliances, it is possible that the opposite of deculturation could happen, yet the homeowner would probably not know it unless provided with a summary report from their washing machine.

Prediction: The advent of ultra consumables will lead to no differentiation of products resulting in an ever greater increase in deculturation.

20+ Year Prediction

The Bigger Experience

The trend of machine to machine marketing is easily extendable to other areas of life no longer ruled by things not normally considered commodity consumables. Experiences will become more and more important to the individual. The millennial generation today is less concerned about their jobs and moving “up the ladder” than they are in having great experiences. These experiences could be the ho-hum like dinner with a spouse or the grand like a month long road trip across the country.

Imagine a homeowner deciding to go out for dinner with their spouse. All the homeowners care about is the type of dinner they have a passion for: micro-beer pubs. Everything else is noise that they will leave for their household “machine” to take care of. The “machine” will start off by making the reservations at the local micro-brew pub (that has the best online reviews, is within budget for the family and possibly one they haven’t been to yet) for the time that it knows you normally like to eat: 8:00 pm. It will then reserve an autonomous car to show up at the house by 7:30 to pick up the couple. After the autonomous car drops off the couple the car will contract with one of the local parking garages to wait the 1.5 hours for the couple to finish dinner (payed for by the homeowner’s “machine”). The couple after dinner may decide to take in a show or visit a local museum with the details of getting tickets taken care of on the fly by the homeowner’s “machine.”

While the infrastructure for this scenario isn’t in place yet, many of the building blocks are. First, the buying public wants to have amazing experiences but don’t always like the details. Second, autonomous cars are coming fast from companies like Google, Uber and the current automakers. Also, companies like Google, Apple and Facebook know a lot about individuals. They have geo-location data showing our daily travel behaviors and our purchasing history (with credit card info) so they know what products we like and dislike. All of these pieces and the increasing computing power of technology have the potential to make the above scenario a possibility.

Prediction: Technology combined with user comfort with machines making decisions for us will lead users to be more focused on an experience than on the details that go into making that experience happen.

Prescriptions

The companies that will be best positioned to take advantage of these trends are 1) the current brands and 2) some of the larger tech players that own a lot of data about the buying public. There will be places where they will clash since one side has some of the business strengths while other players have the other business strengths that are needed to make these predictions a reality.

While there will be room for outside companies, current companies should look toward the newspaper industry to see their future if they don’t act quickly. How many in the newspaper industry wish they had developed Craigslist, Facebook or Twitter first? Large consumable brands should be actively building out entrepreneurial teams to develop ways to keep their companies ahead of these trends else they could see their market share diminish.

For the Brands

Override the Machine

While the household appliances could autonomously make purchases it seems obvious that the humans in the house will be able to override any decisions the computer will make. This will be an opportunity for the brand.

Companies will need to rely on the brands that they have spent decades and billions of dollars building. This is what will hopefully keep users specifying their products going forward. Unfortunately, the word “hopefully” is not a strategy. Brands will need to spend a considerable amount of money to keep their names in front of the consumer through marketing or coupons and even then there is the possibility that the current trend’s momentum will make the effort all for not.

Own the Experience

This is the most likely scenario. Brands will need to expand their offerings into additional products and equipment. They will also need to consider customization as an alternative to traditional branding.

Brands will not only need to consider all products a home needs but also the equipment that uses those products. Brands should consider getting into the hardware business. It could work similar to the razor and blades business model. Brands could sell the household appliance, at a loss, with the computer preprogrammed to be predisposed to purchase the ultra commodities from the brand.

To provide incentives to the homeowner to buy all their products from a single brand, customization of the products could take place. Currently, if you look at a homeowner’s cupboard you see a cornucopia of colors from the labels. Imagine if a homeowner could customize the look of all those products to match the decor of the room they go in? These designs could change with the seasons or as the room color changes. This could offer an incentive to stay with a single brand for the long haul.

Outside Players

Run the Search Engines

While it is possible that search engines will shrink in size so every computer, appliance or “machine” comes pre-loaded with one [9] the functionality needed to search lots of products could become a specialized business. The search engine index must be designed to gather objective information about products and present it in a way that a household appliance can use to make appropriate buying decisions.

While Google is the obvious choice for running these specialized search engines it is easy to imagine other players. A company like Amazon or Alibaba have much of the appropriate product facts and reviews to make them another obvious choice to run an objective, product based search engine. A group of large, multinational conglomerates could also bind together to pool their product knowledge into a format that would make it easy for a home appliance to use in making a buying decision.

Blockchain for the Supply Chain

In a machine to machine buying structure it will be critical for the household appliance to make decisions based on objective facts about a product. Since the appliance won’t need to be marketed to the decisions will be based on facts like ingredients, bottle size, raw material sourcing regions, environmental concerns and where the product is made.

The ability to track the product facts so they are accurate could become critical to a human trusting their household appliance to make that purchase. The use of blockchain, the underlying technology technology to bitcoin, could be the solution [10]. Blockchain has the ability to be used in the supply chain to track the product from the source of the raw materials all the way through production and shipment [11,12]. While companies may not want to have every detail (e.g. quantity, price, location) of their end to end transaction viewable to the public, it may become inevitable based on market forces outside their control.

Since the blockchain will need to be set up across industries there are three likely companies to set it up. The first is the large multinational that can push their downstream suppliers to act. Trade associations could also play a role by bringing together all the necessary companies to support a solution. Finally, a governmental organization could also legislate labeling requirements using blockchain as the underlying technology.

Own the Experience (Expanded)

In the expanded scenario above the household “machine” is responsible for all the little details about the night. If we stipulate that machines don’t need to be marketed to, where does that lead the marketing as a profession? It will need to start thinking big picture and across disciplines. I can imagine that marketing is a core business function that will need to be outsourced to a company that “represents” an experience. This company could represent a geographic region (e.g. a city with all their shops, restaurants, museums, etc.) or a company geared to the super wealthy that markets to their whims. The goal of this company would be to get either the homeowner in the city or the super wealthy to want that experience. Once that experience is desired, the “machines” will take over to ensure cars are scheduled to pick up on time, reservations or tickets are secured and plane reservations are all set.

What can Halt the Trend

The biggest threat to halt the trend of machine to machine buying are security and privacy concerns. Do we as a society really want our laundry machine or refrigerator to know about our online search habits or our bank balance?

What about security issues? The recent Denial of Service (DoS) attack in October, 2016 showed what could happen if all these Internet of Thing (IoT) devices aren’t properly secured [13]. They have the potential to be taken over for either large scale attacks or to get the laundry machine to purchase the brand of product that that hacker wants.

Any serious breach of security or privacy could swing the pendulum from technology running our lives back to a somewhat simpler time.

Sources:

[1] http://www.businessinsider.com/10-companies-that-control-what-we-buy-2014-7

[2] http://www.financialsense.com/contributors/christopher-quigley/kondratieff-waves-and-the-greater-depression-of-2013-2020

[3] Quelch, J. A., & Harding, D. (1996). Brands versus private labels: Fighting to win.

[4] http://online.notredamecollege.edu/psychology/the-psychology-behind-a-grocery-store%E2%80%99s-layout/

[5] http://www.realsimple.com/food-recipes/shopping-storing/more-shopping-storing/grocery-store-layout/shelf-layout

[6] https://www.amazon.com/Dash-Buttons/b?ie=UTF8&node=10667898011

[7] Cornish, E. (2004). Futuring: The exploration of the future. World Future Society.

[8] https://en.wikipedia.org/wiki/Moore's_law

[9] Trotman, A., & Zhang, J. (2013). Future web growth and its consequences for web search architectures. arXiv preprint arXiv:1307.1179.

[10] https://en.wikipedia.org/wiki/Blockchain_(database)

[11] https://techcrunch.com/2016/11/24/blockchain-has-the-potential-to-revolutionize-the-supply-chain/

[12] https://www.bloomberg.com/news/articles/2016-11-18/wal-mart-tackles-food-safety-with-test-of-blockchain-technology

[13] http://www.computerworld.com/article/3135285/security/ddos-attack-shows-dangers-of-iot-running-rampant.html