In a keynote presentation delivered at Insight Innovation eXchange (IIeX) 2017, J. Walker Smith, Global Chairman of Kantar Futures, explains how businesses need to make new connections with consumers if they are to prosper in tomorrow's world of information overload, slowing economic growth and planetary limits on resources.
The financial crisis of the 2000s marked the end of an age of unrestrained consumption and the beginnings of a Third Age of Consumption in which capacity constraints – cognitive, economic and resources – will rechannel consumers away from 'stuff' per se to experiences, relationships and algorithms as the drivers of value, status and aspirations.
As a result, companies are going to have to fundamentally change their business models and the way they engage with consumers.
The drivers of this new age are information overload, slowing economic growth and planetary limits on resources. Consumers are also moving away from a late 20th century mindset which valued accumulation to a 21st century set of priorities which can be summarized as 'Live Large, Carry Little.' People continue to want bigger and better lifestyles, but now they want it without all of the baggage and burdens that used to come with it.
Experiences are what people want from brands. So increasingly, people are anxious to decouple the benefit from the thing – the ride from the car, sleep from the hotel, content from the device, and the shopping cart from the store.
Relationships are what people want from their lifestyles. Contrary to received wisdom, people want to connect more than ever, so they want the brands they do business with to connect them with other people and not keep making the hard sell.
Algorithms are what people want from marketing. People love advertising, but too much of a good thing is pushing people to technologies that can save them time and give them back headspace.
Fresh, innovative business models are evolving to cater to these new consumer preferences and to make the most of the latest digital technologies and their ability to connect people and deliver experiences and relationships based on sophisticated algorithms that tie brands to people's lives. Sharing models like Uber and Airbnb are obvious examples of digital disruption. The new combination of Amazon and Whole Foods is another.
The future will see algorithms processing information in real-time not just for programmatic marketing by brands but for programmatic consumption by consumers that will completely disintermediate brands from buyers and force new strategies. Brands will have to learn to advertise to algorithms, and brands will have to figure out how to get into people's preference profiles as algorithms make consideration sets irrelevant.
Marketplaces have been splintering for years. The diversity of tastes, values, ideologies and lifestyles around the world has exploded. Niches are the new scale. Differentiation and innovation are bigger than ever, yet difference and diversity come with polarization, too, as political outcomes have demonstrated more clearly than anything else. But actually, this is an opportunity for brands to renew and strengthen the ties that bind them with consumers. Mastering this balance of diversity and unity is the 21st century challenge of community.
However, these new models of success will challenge the generation of today's business leaders weaned on the big, easy growth of the boom years during the late 20th century. The critical imperative for future business success will be creating waves of demand, not relying on waves of demand to carry them forward. This will take companies into unfamiliar territory where demand is found only in uncomfortable places. But growth will be found only in these places outside the traditional comfort zones of business leaders. So that's where they will have to go.
Adding to these pressures are tomorrow's generations of Millennial and Centennial consumers. They are building lifestyles that reflect capacity constraints, including things like lifetime goods, handcrafted products, local brands and new ways of traveling lighter and shopping more collaboratively.
As The Third Age of Consumption unfolds against a backdrop of cognitive, economic and resource capacity, the new focus for companies must be on growing value from Experiences more than products, from Relationships more than brands, and from Algorithms more than branding to create a new E.R.A. of success.
Through an extensive review and analysis, Kantar Futures has identified the four main archetypes of business model innovation. These are:
EXTRACTING: What can be removed?
BUNDLING: What else can be wrapped into the product or service?
UPSERVING: What would make the experience richer?
MARKET-MAKING: How can we better connect buyers and sellers?
Each of these four must deliver improved engagement and greater value. In a marketplace where the track record of brands for consistently delivering value is questioned by more and more consumers and where the value of loyal consumers is increasing for more and more brands, companies must develop new business models.
While new business models are imperative, business leaders should also remember that the notion of a business model is a mental construct that arose because spreadsheets have made possible to test business assumptions on a computer screen. Doing so is critical from a financial standpoint, but from a strategic standpoint, this is a coldblooded, unemotional way of assessing why people buy.
A brand is more than a business model. A brand is a story told about what goods and services mean to the good life that people want for themselves, their families and their communities. Going forward, the most important thing that companies must learn anew is how to tell new stories that will resonate in the Third Age of Consumption.